Sunday, April 16, 2006

Chad Government Threatens Oil Production Against World Bank Policies

Revenue from oil is providing the fertile ground for dispute between the government in Chad and the World Bank.

Chad is one of the poorest in the world. About 80 percent of its 7 million people live on less than $1 a day in this landlocked country in Central Africa. Like many others in the continent, Chad is trading on oil to increase GDP growth and development. The current project causing the dispute is the pipeline from Chad through Cameroon, built to transport the oil for export at the Atlantic Coast.

Total project costs were estimated at $4.1 billion. While the private sector sponsored most of the costs in this project, the World Bank has provided loans of $39.5 million to Chad as well. The condition of this World Bank loan is poverty reduction, to be monitored by Chad's churches, trade unions and non-governmental organisations.

Last December the Chadian government changed a law that carefully controlled how oil revenues were spent. Chad wanted to use $36m of revenues held in a fund that is meant to tackle poverty to deal instead with the country's financial problems, against the World Bank's warning. In response, the Bank froze all payments of oil revenues to the government, amounting to $100m. Failing negotiations, the Chadian government is issuing an ultimatum now, threatening that if the Bank does not turn over the revenue by noon on Tuesday next week, the pipeline will be shut down.

If the flow of oil is stopped, profits enjoyed by oil companies in the United States, namely Exxon Mobil, will dry up along with the pipeline.

The Chadian government accuses the World Bank of colonizing the country by imposing policy goals on money earned with the country's own natural resources. This controversy illustrates a classic problem in development economics, that in receipt of aid from the developed world, developing countries have to give up significant control over its national policies, implicating national sovereignty.

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