Island in an Oil Boom
Part 1, 2, 3, 4
The Presidential Palace in Sao Tome.
A cool tropical breeze blows over Sao Tome's presidential palace. On its terrace, an eight piece band plays a medley of local hits. Sao Tome's president, Fradique de Menezes, welcomes the guest of honor. He's not an oil executive or politician, but a jet-setting economist named Jeffrey Sachs. Sachs is an author and senior advisor to the United Nations. He also heads a team of experts from Columbia University that is advising Sao Tome and other developing countries.
President de Menezes and his ministers are dressed in tropical shirts. Sachs stands out as the guy in the suit. He's come to Sao Tome as an unpaid advisor with a formula to lift people out of poverty while pressing the government to keep corruption at bay. One half of his big idea: a crash development program to build health clinics, schools, roads, and power lines.
"Don't let anyone tell you that you can have a modern economy without electricity," says Sachs. "This is the major challenge of development in this country because without the basic infrastructure, nothing else can happen economically."
Sao Tome and Principe President Fradique de Meneses.
ISSOUF SANOGO/AFP/Getty Images
And in a new oil economy like Sao Tome's, Sachs says it's vital to show quick results so poor citizens don't feel left behind.
But officials at the World Bank and the International Monetary Fund, the biggest lenders to poor nations, disagree. They say sudden infusions of capital overwhelm poor countries just as too much food can kill a starving child. These international financial institutions are telling Sao Tome to go slow. Better to lock away most of the oil revenue, not spend it so it doesn't disappear.
Sachs meets with a parliamentary committee charged with preparing an oil revenue law. He asks the committee chairman how much the World Bank and the IMF say the government can spend of its future oil profits.
"Only the interest," says the chairman of the committee speaking through an interpreter. "There you've hit the problem."
Sachs then makes a rough calculation of how much Sao Tome would get if it only got the interest from the oil revenue.
"The first year you'd spend 5 percent of $10 million. The next year, you'd add an extra $10 million and you'd be waiting a long, long time before you even started spending the money. That's too conservative."
Sachs says he's frustrated with the advice the rich world is giving poor countries like Sao Tome.
"Frankly speaking," says Sachs, "we're talking about a small country, maybe 140,000 people. If all these big agencies, the IMF and World Bank and so forth, can't figure out how to help, then I don't know what their business is. The rich world has long promised to help impoverished places in the world escape from extreme poverty and yet the rich world hasn't done that. I'm not saying spend what you don't have but I'm also saying emphatically not simply to save what comes now and put it off for some illusory future."
Sachs takes the same approach around the globe. As a United Nations Undersecretary General, he co-authored a plan to eradicate world poverty, in part by calling for a huge new infusion of Western aid.
But critics say Sachs is in too much of a hurry to spend money. They say his big push plan is na´ve and reckless. William Easterly says it will likely make a big mess in Sao Tome, just as similar efforts have done in other countries.
"The money is spent on white elephants," says Easterly. "The highways are built but with massive corruption. And Africa is just as poor today as it was at independence because of the failure of these aid-financed big pushes. They just don't work."
Go to Part 3