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EJ 5 Classic Resouurce Curse H


Classic Resource Curse

In 2003 an editorial in the Financial Times expressed Natural Resource Curse issues well:

"By past experience, you could wish nothing worse upon a developing country than an oil find...
No longer needing to rely on taxes, they become less accountable to their people
Oil has proven to be an addition for the rulers."

The causes are broader than the effects of an oil find and can occur in every part of the economy and can be triggered by many types of resources.  For a "Classic Resource Curse" description, we refer to the economic phenomena that has been described as “The Paradox of Plenty” or "Dutch Disease".
A common sequence of this follows:

  1. A resource find occurs or resource exploitation begins
  2. Currency appreciates, making it harder for other export opportunities in the country due to the foreign exchange conditions. Other exports decrease.
  3. Because of "We are now rich" thinking, partly because of resources, or some high sector wages, public spending increases far more than is prudent, and public debt increases.

Opportunities for corruption increase and this has a flow on effect in all sectors
  4. Government accountability is weakened
  5. Commodity price volatility can cause unstable government revenues, meaning services aren't provided as hoped
  6. The overall effects can increase discontent and exacerbate conflict.

The overall effect is that other industries are disadvantaged, unsustainable spending and consumption patterns develop, debt increases, other industries are disadvantaged, government accountability suffers, corruption increases and conflict can increase. Overall this is a terrible result for all citizens, so much effort is needed to try and ensure the sequence does not occur.

Application of initiatives like the Natural Resource Charter principles and the EITI are to help prevent such sequences and help correct for the known problems.

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