Sep 4th 2008
From The Economist print edition

As prices fall, can sovereign-wealth funds break the resource curse?

COUNTRIES flush with oil and ore should grow faster than those that are barren. Puzzlingly, they often do not. Natural-resource income is spent rashly or invested at the expense of other sectors of the economy. Governments binge on spending during booms and cut back harshly during busts. These policies exacerbate the economic cycle, and contribute to the paradox of the resource curse.

During the recent commodities' boom, resource-rich countries have sought to escape the curse by pouring natural-resource income into sovereign-wealth funds (SWFs). By the end of 2007 the funds were worth up to $2.5 trillion. But with oil prices tumbling to below $110 a barrel on September 3rd, their fortunes may be changing. If the rout continues, will the guardians of such rainy-day money be able to keep the politicians' fingers out?

For the full article, please visit: http://www.economist.com/finance/displaystory.cfm?story_id=12060219