Mineral wealth and the economic transition: Kazakstan

The exploitation of mineral wealth can amplify the problems of the transiti on economies in three basic ways. First, the rebound of the real exchange r ate that characterises a successful transition may be augmented by the capi tal inflow required to expand mineral production. This can cause both reces sion in the short-run and lower growth in the medium-term. Second, when the mineral revenues expand, the Dutch Disease effects may intensify the trans ition-related shrinkage of the non-mining tradeable sector, thereby retardi ng economic diversification and rendering the economy vulnerable to externa l shocks. Third, a mineral boom tends to concentrate revenue on the governm ent, which may use it to postpone difficult decisions on economic reform an d/or dissipate the revenue due to weak financial markets and inadequate pub lic accountability. Kazakstan, like oil-rich Azerbaijan, is a late reformer and displays evidence of a faster transition rebound than other less resou rce-rich countries in the CIS do. However, Kazakstan has two advantages ove r Azerbaijan. First, Kazakstan has a more diversified mineral endowment wit h which to counter any trend towards single commodity specialization. Secon d, Kazakstan is making a later start on oil expansion so that it can learn from the experience of Azerbaijan. Priorities for Kazakstan are the continu ation of prudent economic policies, the creation of institutions to enhance the transparency of the revenue flows, and the use of environmental accoun ting to provide a rationale for the deployment of the oil rents. (C) 1999 E lsevier Science Ltd. All rights reserved.