Monday, December 5, 2022

Transparency, conflicts and management of Guyana’s natural resource revenues

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On 2nd March 2020, Guyana held its first general and regional elections since becoming an oil producing country. With vast oil revenues about to flow into Guyana, it will become the lifeblood of the modern economy. The discourse about how oil has made or marred the destinies of nations is intrinsically linked to its governance. Sadly, the Guyanese face of that discourse is heading in the location of the epitaph of the “resource curse” – a paradox under which countries that are rich in natural resources such as oil, gas and minerals experience less economic growth and poorer development outcomes compared to those without natural resources.

Conflict prevention through resource revenue management mostly falls under the general agendas of good governance and sound fiscal and macroeconomic policies. A central priority is to combine fairness in distribution with greater transparency and accountability. This requires strong institutions reflecting the interests of local populations. Unfortunately, the negative effects of revenue windfalls on institutions are well documented. They include corruption, authoritarianism, and policy capture by vested interests. Arguably, addressing these likely effects requires enforceable international standards and effective domestic democracy. Both, however, face numerous challenges.

At the international level, a first challenge results from sovereignty claims and a lack of financial leverage: resource-rich states need not bow to the demands of donor countries and international agencies. Resource revenues and resource-backed loans from private banks can generally serve their priorities, even if at a costly premium. The second challenge is commercial interests: resource-rich governments have the ear of resource companies, and thereby of their home governments and the international agencies that they control (Dashwood 2005). Commercial interests can overtake other agendas, with for example competition for lucrative resource projects eroding a common front for fiscal transparency among international actors. The third challenge relates to resource supply security interests. Like commercial interests, oil supply security in particular can supersede reform agendas in producing countries. In this regard, companies from fast-growing industrializing countries, such as China, are often portrayed as lowering standards of transparency and accountability, but such criticisms gloss over long- established similar behaviour by western governments and companies. More research and policy engagement are required in this matter to improve government and corporate practices, at specific country-level.

At a domestic level, patronage politics enabled by resource revenues represents the major challenge. The goal of transparency is not simply the publication of revenue figures. To bring about meaningful transparency and accountability, civil society, the media, and parliamentarians need to have the capacity and leverage to act upon this information to improve revenue management. Public information can in itself bring about greater awareness, bolster the legitimacy of grievances denounced by the wronged parties, and apply pressure for reforms. Yet economic, political, or judicial avenues for (peaceful) change and reparation are also required to have an impact on the ground. In the absence of such institutional safeguards and countervailing forces, progress on transparency is unlikely to result in greater accountability. It is at this level that international initiatives also need to tie into accountability measures. In seeking to promote transparency and accountability, international initiatives need to take into account the domestic political context, not only to be more effective but also to minimize counterproductive effects such as crackdowns on civil society or political crises with far-reaching consequences. There remains in this regard a need to better understand domestic mechanisms of accountability and the means of strengthening them in resource producing countries. Initiatives seeking to improve management structures have been taken at both international and domestic levels, sometimes in combination. International initiatives have largely evolved over the past two decades. Aid and resource revenues were perceived until the 1980s – at least in official international development and security circles – as key ingredients of the consolidation of “friendly” states on both sides of the Cold War divide. Growing public debt, ensuing structural adjustments and neoliberal policies, as well as the end of Cold War geopolitics (now replaced by the “war on terror”) and greater awareness of economic agendas in wars shifted this focus towards “good” governance and market-oriented priorities. As a result, select areas like transparency have thrived, while others like government-led international price stabilization mechanisms have declined.

International initiatives on transparency and accountability have sought to support domestic policy formulation and implementation, as well as helping define and enforce good practices in both public and private sectors. External interventions into resource management may be perceived as a solution to such mismanagement in the case of weak and biased governance in producing countries. Yet some of these interventions also proved controversial and misdirected. Critics of the International Monetary Fund (IMF) and World Bank, for example, argue that forced deregulation and privatization in the resource sectors constitute damaging forms of political interference when considering the practical outcomes of some past interventions. Critics of multinational resource corporations have similarly pointed to their mixed record in terms of probity, human rights records, profit sharing, and support for repressive regimes (Tan 2002).

Three complementary initiatives are now underway to improve transparency in the resource sectors: the “publish what you pay” (PWYP) campaign focuses on mandatory disclosure of payments to host governments by extractive companies, the extractive industry transparency initiative (EITI) promotes voluntary disclosure by host governments in partnership with extractive companies, and the International Monetary Fund’s (IMF) guide to resource revenue transparency (GRRT) sets standards of good practice.

Ending Resource-Fuelled Conflicts

Three broad types of initiatives can curtail the use of resource revenues by belligerents to finance and profit from hostilities:

  1. Capturing resource areas from belligerent forces,
  2. Imposing economic sanctions to curtail market access, and
  3. Sharing resource revenues between belligerents.

New market regulation schemes, have significantly strengthened the control of conflict resources and improved resource revenue collection by local governments.

The military capture of resource regions from rebel forces appears to be a deceptive quick fix. Successful implementation often forces the targeted party into a settlement, but ultimately fails to dovetail into a stable peace. As such, military capture requires significant follow-up to avoid the recurrence of hostilities, including peacekeeping, negotiations, and effective demobilization. Military intervention also poses major ethical dilemmas, and especially so when intervening forces (troops from foreign countries or mercenaries) are suspected of commercial interests.

Economic sanctions have a poor overall record in terms of implementation and impact. The end result has been that poorly enforced sanction regimes favoured less law-abiding businesses, including politically connected criminal groups, with potentially negative consequences in terms of conflict termination. Major improvements have been noted since the late 1990s (Cortright and Lopez 2004). Targeted sanctions, the creation of independent investigative panels under the United Nations (UN) secretariat and “naming and shaming” of sanction busters, the imposition of “secondary” sanctions (e.g. Liberia), the Kimberley process certification scheme, and judicial trials have improved the effectiveness of sanctions. Sanctions remain subject, however, to the vagaries of UN security council members’ politics, poor enforcement by most states, and the complacency of many businesses. The most thorough attempt to manage resource revenues under a sanction regime and redirect them to humanitarian purposes, can be marred by corruption and political instrumentalization.

Sharing resource revenue between belligerents can be as successfully achieved as military conquest and is more rapidly followed by conflict settlement. This likely reflects a timing issue, since agreement on revenue sharing is often part of a conflict settlement. Moreover, sharing revenues is rarely associated with a stable peace. Given the asymmetry between belligerents and the risks of duplicity underlying many of these sharing agreements, third parties may usefully act as agreement guarantors. Adequately mandated peacekeeping forces and an international supervising mechanism for the resource sector can help provide such guarantees.

The relative effectiveness of these three types of initiatives appears to respond in part to the characteristics of the targeted resource. Resources most accessible to rebel forces, such as alluvial diamonds or timber, seem best addressed through sanctions, while military capture is most effective for resources like oil that fall more easily under government control. Controversially, illegal resources such as narcotics appear to be best dealt with through sharing arrangements between belligerents. Such a “realpolitik” approach to conflict resolution can easily prove controversial, if not counterproductive, as suggested by the cases of Burma, Colombia and Afghanistan.

Beyond formal initiatives such as military action, sanctions, and revenue sharing, attention to economic agendas in war has increased pressure on financial markets and individual businesses to end their complicity in war economies.

To sum up, a general sequence of measures for the regulation of conflict resources based on available instruments should include: early warning systems identifying the existence of conflict resources, based on media, business, and Non-Governmental Organisation (NGO) reports, possibly by a permanent UN monitoring mechanism; a UN security council resolution setting up expert panels and considering sanctions on conflict resources pending adequate national certification or international supervision of the resource sector; an assessment of the potential role of military intervention and UN peacekeeping deployment in targeted resource areas; a screening of corporate activities and international review of legislation and practices in resource extraction and trading in neighbouring countries and other areas identified as transit or importing countries; the criminal prosecution of sanction-busters using national and international legislation; and, finally, aid and assistance to targeted countries to facilitate compliance with international certification schemes and security council resolutions.

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