Saturday, December 17, 2005

FIVE YEARS AGO, the World Bank lent money and credibility to a risky experiment. Despite the depressing record of oil projects in poor countries -- they tend to fuel corruption rather than boost development -- the bank provided $190 million to kick-start the oil industry in one of the world's most impoverished dictatorships, the landlocked African state of Chad. As a condition of its lending, the bank insisted that oil revenue be used for poverty reduction, and at first it mostly was. But now Chad's government wants to relax the restrictions on how it spends its petrodollars. Unless Chad backs down, it will become harder for the World Bank to justify future oil projects in poor countries. Western oil companies that invest in such places will face more criticism, too.

The bank's Chad experiment was always a gamble. Its own research suggested that aid to countries with poor governance was often wasted. Indeed the bank had poured nearly $1 billion into Chad since the country gained its independence in 1960, and it has seen little in return. The bet was that Chad's governance could be upgraded as part of the oil project: The bank required Chad's dictator to set up an independent agency to monitor the spending of the oil revenue, and the agency was assisted by Western advisers and overseen by a board that included Chadian opposition groups. Having failed during the 1980s to improve developing countries' policies by attaching conditions to its loans, the World Bank hoped that the creation of a new oversight institution staffed with forceful officials might succeed.

This hope has been at least partially vindicated. The flow of petrodollars to Chad's government has remained transparent, which is more than can be said in many African oil states. The new monitoring agency has reported on how the petrodollars are being spent, criticizing mismanaged projects with an openness that's good for Chad's political culture as well as its efforts against poverty. But the new attitude from Chad's government threatens this progress. It is demanding the right to spend oil revenue not just on anti-poverty projects but on almost anything, including its security forces.

The World Bank's new boss, Paul D. Wolfowitz, is belatedly pressuring Chad's government to reconsider this option. But Mr. Wolfowitz needs high-level help from other outsiders, notably the American and French governments and Exxon Mobil Corp., which leads the consortium that developed local oil. So far Exxon Mobil has kept its head down, hoping to leave the fight over revenue management to the bank and government donors. But in a world of high oil prices, petrodollars are a more important lever on Chad's rulers than aid flows, so Exxon Mobil needs to use its influence. The company ought to be glad to do this, because it has a stake in showing that oil can boost development. Otherwise it will be targeted by critics in rich countries and may face sabotage and violence in the poor countries where it operates.