[Op-Ed] `Resource Curse`

Chilean Finance Minister Andres Velasco until recently was called a “wet blanket at a fiesta.” As raw materials prices surged in 2006, Chile, the world’s biggest producer of copper, was rolling in dough. With abundant money that came easy, Chilean high school students clad in black and white school uniforms went on a “march of penguins,” demanding free transportation fees. Labor also went on strike for wage increases. Velasco, however, did not loosen his government’s purse strings, citing the history of Latin American booms that ended cruelly.

Not all natural resource-rich countries are wealthy, as is the case with many in Africa, the Middle East and Latin America. Despite having 2.7 percent of the world’s oil reserves, Nigeria suffers from endless poverty, corruption and violence. Many countries where oil or other mineral resources are concentrated show more serious levels of politico-business collusion, dictatorship and corruption. Easy money hardly motivates their governments to invest in the future such as in education and infrastructure spending. The deficiency of democracy under which people do not pay taxes, and politicians take no responsibility becomes intense. When raw material prices plunge, the poor bear the brunt of what is called the “resource curse.”

It was not until the global economic crisis that Velasco eased monetary policy to boost the economy. The Wall Street Journal said his strong determination not to be swayed by populism saved Chile. While Velasco did a great thing, he did not do it alone. In 1985, Chile created the Economic and Social Stabilization Fund to ensure that the money earned from copper will be used in difficult times or for future generations. The U.S. conservative think tank Heritage Foundation says that with or without natural resources, a country’s wealth depends on its policy.

Chile has solidified its economy in good times by maintaining a sound fiscal policy that keeps inflation in check and implementing market reforms such as the privatization of state-run companies. Economic freedom as cited by a Heritage Foundation report last year was the secret to escaping the resource curse. Chile is governed by moderate leftists, including Velasco, showing that good policies do not stick to a single ideology.

Editorial Writer Kim Sun-deok (yuri@donga.com)