Natural Resources and Violent Conflict - WaterWiki.net

who gets the money? 55of line ministries and parastatals that, in turn, try to obscure suchflows for their own organizational or personal ends. Such off-budgetorganizations often depend on the protection of powerful politicians,who also may benefit from the resource revenues. For example, formerIndonesian president Suharto reportedly used off-budget funds generatedby the state oil company, Pertamina, and later by the ForestryMinistry’s reforestation tax to fund questionable prestige and developmentprojects. 10 The Finance Ministry was able to rein in Pertaminaand redirect its revenue flows through the treasury only after 1979,following Pertamina’s bankruptcy due to uncontrolled overborrowingon international markets (Ascher 1999).The use of state enterprises in the extractive sectors appears to poseparticular problems for the transparency of natural resource revenues.With respect to the oil sector in OECD countries, state-owned enterprisesenlarge the scope for nontransparency of public accounts(OECD 2002b). In non-OECD countries, where overall fiscal controlsgenerally are less transparent, the potential for opacity of revenuetransfers is likely to be greater.A potential problem is that parastatal companies typically are notintegrated into the government in the same way as a line ministry andthus are not likely to come under the same general reporting proceduresand controls. An additional problem is that extractive parastatals arelikely to operate in remote areas, which poses difficulties for auditingand control. Related to this, at least for mining and oil and gas operations,the technical nature of parastatal activities can make it difficultfor government auditors to calculate real costs and profits accurately.For example, after the Pinochet government regained control of thecopper industry in Chile, it took the government several years to understandthe industry and its accounts well enough to reestablish significantrevenue flows through the central budget (Ascher 1999). Thegovernment eventually put severe limits on the copper company’sactivities, including its ability to invest, in order to “keep the scope ofCodelco operations within the capacity of the government to monitorand control.” Noting other examples, such as the oil industries ofMexico, Peru, and Venezuela, Ascher (1999) comments that it is commonfor state enterprises to be transformed from accomplices in offbudgetfinancing to undercapitalized victims of the efforts of budgetauthorities to tax and control.One reason it may be difficult for central budget authorities to keepadequate control over the finances of state-owned oil companies isthat the market does not require these companies to provide transparentinformation. For this reason, state enterprises operate more transparentlywhen they are involved in joint ventures with international