Debt and poverty
The Resource Curse
In 1993, Richard Auty wrote a book entitled Sustaining Development in Mineral Economies - The Resource Curse Thesis, in which he argued that although mineral resources had been seen as desirable, there was growing evidence that these so-called "natural assets" could distort a country's economy to such a degree that it actually became a curse. 
Two years later, in 1995, economists Jeffrey Sachs, from Columbia University and Andrew Warner from Harvard published further work on the "resource curse." They noted that "one of the surprising features of modern economic growth is that economies with abundant natural resources have tended to grow less rapidly than natural-resource-scarce economies." The two economists studied data from economies with a high ratio of natural resource exports and compared this to GDP from 1971 to 1989. Those with a higher ratio of natural resource exports tended to have lower growth rates. 
Drilling into Debt
At the G8 Summit in 2005, Oil Change International, the Jubilee USA Network, the Institute for Public Policy Research, Milieu Defensie, and Amazon Watch co-published "Drilling into Debt," the first study of its kind to examine the relationship in between oil and debt.
Data was collected for 161 countries for the period 1991-2002, as well as for data on 80 developing countries for the period 1970-2000 for use in a statistical model of debt burdens. The key findings were:
- Increasing oil production leads to increasing debt. There is a strong and positive relationship between oil production and debt burdens. The more oil a country produces, regardless of oil’s share of the country’s total economy, the more debt it tends to generate.
- Increasing oil exports leads to increasing debt. There is a strong and positive relationship between oil export dependence and debt burdens. The more dependent on oil exports a country is, the deeper in debt it tends to be.
- Increasing oil exports improves the ability of developing countries to service their debts. There is a strong and positive relationship between oil exports and debt service. The global oil economy improves the ability of countries to make debt payments, while at the same time increasing their total debt.
- Increases in oil production predict increases in debt size. Doubling a country’s annual production of crude oil is predicted to increase the size of its total external debt as a share of GDP by 43.2 per cent. Likewise, the same change is predicted to increase a country’s debt service burden by 31per cent. For example, the Nigerian government currently plans to increase oil production by 160% by 2010. Past trends indicate that Nigeria’s debt can thus be expected to increase by 69%, or $21 billion over the next six years.
- World Bank programs designed to increase Northern private investment in Southern oil production have instead drastically increased debt. Northern multilateral and bilateral “aid” for oil exporting projects in the South has exacerbated, rather than alleviated debt. Specifically, an examination of those countries where the World Bank Group conducted “Petroleum Exploration Promotion Programs” (PEPPs) reveals debt levels (debt-GDP ratios) in those countries that are 19% higher than those countries that did not undergo this form of structural adjustment.
- The relationship between debt & oil is most likely caused by the interplay in between three factors:
- Structural incentives for and direct investments in the oil industry by multilateral and bilateral institutions, such as the World Bank Group and export credit agencies.
- Oil fueled fiscal folly – both in the North by creditors over eager to lend to nations perceived as oil rich, and in the South by unwise fiscal policies.
- The volatility of the oil market.
Articles and resources
Related SourceWatch articles
- Richard Auty, Sustaining Development in Mineral Economies: The Resource Curse Thesis, Routledge, London, 1993.
- Jeffrey Sachs & Andrew Warner, Natural Resource Abundance and Economic Growth, Columbia University, National Bureau of Economic Research Working Paper No W5398, December 1995.
- Stephen Kretzmann and Irfan Nooruddin, Drilling into Debt - An Investigation into the Relationship Between Debt and Oil, Oil Change International, Jubilee USA Network, Institute for Public Policy Research, Milieu Defensie, Amazon Watch, 2005.