December 25, 2003

The search for transparency in an oil-consuming world

Published in Financial Times, December 24, 2003

Sir, There has been a lot of talk lately about a curse that, through corruption and other distortions, is stopping oil-rich countries from turning income into development. The Extractive Industries Transparency Initiative, championed by the UK and endorsed by the World Bank, has been named an exorcist and is starting the rites by applying a much-welcomed transparency to projects such as the Chad-Cameroon pipeline.

In the name of that same transparency, let us also remember that for every $1 received by any oil producing country (which forever sacrifices a non-renewable asset), the public treasury of many oil consuming countries receives, net, at least $4 and is therefore a likely victim of the same curse, albeit stricken by different symptoms. For instance, in many oil-consuming developed countries, the curse has now created such an addiction to petrol taxes that their whole fiscal structures would be completely unsustainable without them.

Transparency would also, perhaps, not be a bad rite to use to exorcise this tax man’s curse, since most of the petrol consumers in these countries are not remotely aware of the real extent of the taxes and much less of how the proceeds are used.

For instance, having been told that these taxes were environmental, they would be surprised to learn that probably less than 0.5 per cent of the $100 bn collected yearly in Europe, just in taxes on lead-free petrol, goes to the environment; and, worse, that much of it goes in subsidies to the even less environmentally friendly coal.

Also, today, as the possibilities of satisfying the world’s demands of energy seem quite uncertain and the world becomes more aware that the final cost of cutting, or not cutting, the trees of the Amazon will be paid by all, whether they like it or not, it is clear that the world needs to become much more penny-wise when developing alternative energies; and we all know that the best and only companion of the penny-wisest is transparency.

So, after the pipelines, when do we start with the Exchequer’s bag?

PS. I don't find any longer the letter on FT's web so I will scan a copy of it here in two weeks.

January 12, 2003

Credit ratings for developing nations are just a new breed of systemic error

Published in Financial Times, January 11, 2003

Sir, Except for regulations relative to money-laundering, the developing countries have been told to keep their capital markets open and to give free access to all investors, no matter what their intentions are and no matter for how long they intend to stay. Simultaneously, the developed countries have, through the use of credit-rating agencies, imposed restrictions as to which developing countries are allowed to be visited.

This Janus syndrome – “you must trust the market while we must distrust it” – has created serious problems, not the least by leveraging the rate differentials between those liked and those rejected by our modern-day financial censors. Today, whenever a country loses its investment grade rating, many investors are prohibited from investing in its debt, effectively curtailing the demand for it just when that country might need it the most.

Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds. Friends, please consider that the world is tough enough as it is.