Wednesday, December 1, 2010

How to manage rents from non-renewable resources

Some countries are blessed with natural resources, although this turns too often into a curse as rent seeking can turn the economy into a corrupt hell-hole. To make things worse, this type of revenue is highly volatile and there is much incentive to extract rapidly with little thought for smoothing income or investing for the future. Hence, international organizations have pushed very hard for a more sensible management of resources incomes, and their advice has been to extract or invest income in a way to obtain a constant permanent income.

Anthony Venables thinks this is not appropriate for developing countries that have pressing needs right now, like poverty alleviation or a shortage of public infrastructure. In addition, one has to realize that sustained growth is not going to come from the public sector, but through private investment. And making private investment worthwhile can be helped by good, but limited government. This Venables thinks that revenue management should put more emphasis on current expenses than future ones, in order to make sure the country get out of a development trap and can continue growing on its own latter, with relying on its resource income.

PS: the paper's abstract was much more intriguing that the paper turned out to be. The reason is that the abstract make promises about the proper management of income from renewable resources, which would seem much less problematic, unless I was missing something.

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