The 19-month plunge in oil prices has already confounded analysts and cost the global energy sector hundreds of thousands of jobs. Now it’s forcing international banks to decide whether to bail out at least two oil-producing countries, both rated among the most corrupt in the world.
Azerbaijan has begun negotiations for a combined $4 billion from the International Monetary Fund (IMF) and the World Bank, while Nigeria has requested $3.5 billion from the World Bank and the African Development Bank. The two requests were made just days apart in the last week of January.
Economists believe that Venezuela is also at risk of defaulting on its international loans, but because of political reasons—mainly the anti-American stance of its leadership—it is not likely to seek such a multilateral bailout. Saudi Arabia, with some $630 billion of financial reserves, isn’t at risk of default, nor listed among the most corrupt nations, but the IMF is still telling the kingdom that it is urgent to reform its fiscal system.
In Transparency International’s 2015 Corruption Index, released Jan. 27, Nigeria ranked 136th out of 168 countries, with No. 1 being the cleanest and 168 the most corrupt. Azerbaijan was 119th. Venezuela is worse than both of them, according to the index, where it ranks 158th. Saudi Arabia is only 48th.
Sarah Chayes of the Carnegie Endowment for International Peace, a Washington think tank, told Quartz that international loans to countries with high corruption are often “captured by the ruling networks,” and become the property of the folks with political power. The result is that the bailout ends up “reinforcing them, while leaving the population with a burden of debt,” she said.
The answer, she said, is to tie any loans to specific infrastructure projects, and not general reforms, and to ensure strong oversight of the spending.
Chayes also differentiated between Nigeria and Azerbaijan. Azerbaijan, she said, is becoming politically more problematic, with autocratic president Ilham Aliyev further entrenching his power. Aliyev’s “kleptocratic network rules unchallenged,” Chayes said.
In Nigeria meanwhile, Muhammadu Buhari, the new president elected last March to replace Goodluck Jonathan, has proceeded to start cleaning up the corruption-riddled state oil company, Chayes said. “So Nigeria is a country that is at least ostensibly addressing the corruption problem,” she said. “A bailout in this case could be carefully tailored to reinforce the incentive structure for doing so.”
Richard Kauzlarich, a former US ambassador to Azerbaijan, said that as part of any bailout, Azerbaijan should have to agree to privatize state-owned companies and banks, among other steps. He told Quartz that he fears that, to divert the attention of his possibly disaffected population, president Aliyev might start a new war with neighboring Armenia, with which Azerbaijan has held a truce since 1994.