Natural Resources and Violent Conflict - WaterWiki.net

358 guillaumont and guillaumont jeanneneyRecourse to Forward MarketsTo be sure, a partial response to the problem that international price instabilityraises for stakeholders in the sector concerned could be soughtin having recourse to the forward market for export products. Thissolution is limited in scope, not only because such markets do not existfor all products and not all the developing countries concerned havethe capacity to intervene in such markets but also because forwardcover cannot generally exceed 12 to 18 months. Hence, although thisapproach makes it possible to cover price risk within a given year, itdoes not address the year-to-year instability that is at the root of themajor difficulties. Work to develop the use of forward markets andpromote the corresponding domestic insurance mechanisms is beingcarried out, at the initiative of the World Bank, in the context of theInternational Task Force on Commodity Risk Management in DevelopingCountries (see International Task Force on Commodity RiskManagement in Developing Countries 1999).Financial Compensation of Shocks: CompensatoryFinancing, StabexIn light of the problems posed by any effort to affect internationalprices and of the financing requirements of any domestic effort to addressprice shocks, a third category of measures are international effortsto provide financial compensation to countries affected by such shocks.The two mechanisms in this area are compensatory and contingencyfinancing, which was created by the International Monetary Fund(IMF) in 1963, and the export receipts stabilization system, or Stabex,which operated under the Lomé conventions for the period 1975–2000.While both aimed at compensating for drops in export earnings attributableto changes both in international prices and in the volume of exports,the two mechanisms are very different in design. Compensatoryfinancing is a drawing on the International Monetary Fund authorizedin the event of a decline in overall exports (or a price spike for imports)within the framework of a negotiated program. It is designed to helpa country experiencing a balance of payments problem. Stabex wasEuropean assistance in the form of a grant or a loan, and subsequentlygrants only, provided to the African, Caribbean, and Pacific group ofstates in a manner initially planned to be automatic, so as to compensatefor a decline in proceeds from agricultural exports to the EuropeanCommunity. Such agricultural exports were considered on a productby-productbasis for a certain number of eligible commodities.These two mechanisms both evolved considerably over time andultimately failed to fulfill the expectations they had initially raised. A