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Forum: Helping Countries Avoid the “Resource Curse”

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
July 2006
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How can the mining and metals sector contribute to sustainable progress in the developing world? The International Council on Mining and Metals (ICMM) seeks to help answer this question with its Resource Endowment Initiative, a project launched two years ago with the help of the United Nations Conference on Trade and Development (UNCTAD) and the World Bank. On June 30, Kathryn McPhail (Principal, ICMM) and John Groom (Head of Safety, Health, and Environment, Anglo American plc) presented the initiative’s initial findings to a group of IMF staff.

The initiative set out to explore why the “resource curse”—the paradox that countries with abundant natural resources often have lower economic growth than countries without comparable resource endowments—was not a universal phenomenon. With the help of expert consultants and an independent advisory group, the ICMM conducted four case studies in countries with long histories of mining activity—Chile, Ghana, Peru, and Tanzania. To ensure greater comparability in macroeconomic policies, the case studies focused on periods following the implementation of economic reform programs supported by the IMF and the World Bank.

Foreign direct investment registered a marked increase in each of these countries, with exports also rising, and mining contributed to higher GDP growth. This phenomenon was most striking in Ghana, whose per capita GDP had registered positive growth since 1987. In addition to higher growth, Groom explained, the study showed significant reductions in poverty in Chile and Ghana, at both the national level and in the mining regions. For Tanzania, the data were incomplete, while for Peru, no meaningful poverty reduction was in evidence. All four countries also registered a slight improvement in governance from 1996 to 2004, though McPhail observed that only in Chile did governance reach a level where it could be considered good in absolute terms.

In addition to problems of governance, taxation and royalty issues were seen as critical to tapping the full potential of mining sectors. The study identified problems with the allocation of mining revenues between different levels of government, as well as with the capacity of regional and local authorities to manage mining revenues. In the lively question-and-answer session that followed the presentation, staff economists stressed the need for equitable sharing of both risks and rewards between companies and host governments. More generally, staff noted that fiscal policy should be used to help save windfall gains and thereby cushion the effects of commodity price volatility.

What’s next

In the initiative’s next phase, the ICMM will work with donor agencies, civil society organizations, international organizations, and host governments to derive more specific lessons on ways to reduce poverty, enhance revenue management, and increase local inputs into mining projects in host countries.

Moderator Scott Brown (Assistant Director, IMF Policy Development and Review Department) observed that, although much of the initiative’s work falls outside the IMF’s mandate, the organization provides considerable related policy advice and technical assistance in the areas of tax policy, public sector financial management, and fiscal transparency and has recently released the Guide on Resource Revenue Transparency. Brown hoped the two organizations would maintain a continuing dialogue and that it might prove possible for Fund staff to participate in seminars in the field to discuss the lessons from the case studies.

Maureen Burke

IMF External Relations Department

For more information on the Resource Endowment Initiative, please visit the ICMM’s website at www.icmm.com/project.php?rcd=16

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