Exchange to Change January 2018 E2C January 2018 web - Page 18

18 RESEARCH resource dependence and build an economy more resilient to external or internal shocks. Macroeconomic related policies: avoid large scale debt; accumulate budget surpluses, follow prudent exchange rate management policy by controlling the appreciation of the exchange rate; create a stabilization fund to guard against commodity-price volatility; Other policy suggestions: promote or reinforce autonomy of fiscal and monetary authorities to counter rent seekers and special interest groups; adopt Environmental and Natural Resource Accounting (EARA) policies for an effective management of mineral windfalls. Botswana’s success With 40% of GDP stemming from diamonds, Botswana had one of the world’s highest growth rates over 1965-2005 and managed to halve national household poverty incidence from 21.7% in 2002-2003 to 10.8% in 2009-2010 (Statistics Botswana, 2013). According to Acemoglu et al. (2003), this remarkable performance is explained by good institutions in Botswana. Particularly the constraints on political elites helped to avoid a distortionary economic policy (Iimi, 2007) and to a large extent, Botswana was able to escape the resource curse (Lewin, 2011; Iimi, 2007; Atsu Amegashie and Kamara, 2008 ; Sarraf and Jiwanji, 2001). For instance: Dutch disease was avoided by government investments in public goods and infrastructure. For instance, the “use of mineral revenues has followed an implicit self-disciplinary rule, the Sustainable Budget Index E xchange to change J anuary 2018 (SBI), under which any mineral revenue is supposed to finance investment expenditure” (Iimi, 2007). Policies were also implemented to boost productivity, particularly in non-mineral sectors, by “limiting parastatals and avoiding import substitution policies” (Lewin, 2011). “In developing countries in particular, the quality of regulation, such as the predictability of changes of regulations, and anticorruption policies, such as transparency and accountability in the public sector, are most important for effective natural resource management and growth.” (Iimi, 2007) The volatility curse was overcome by unlinking public expenditure from revenue. The government established savings and assets funds (e.g. the long-term financial assets ‘Pula Fund’ which is managed in a transparent and accountable manner (Iimi, 2007); and avoided typical procyclical behavior and real exchange rate volatility (Lewin, 2011). Additionally, by tying its hands with parliament authorization, the government was able to effectively control public expenditure (Sarraf and Jiwanji, 2001). The governance curse was avoided, through strong political leadership since independence, constraints on political elites, independent anticorruption authority, respect for property rights and the rule of law, a high degree of transparency and traditional consultative institutions (Kgotla, 2010) to reinforce trust in the government (Lewin, 2011; Iimi, 2007). It is worth noting that on the one hand Botswana’s relatively homogeneous population reduces political and ethnic tensions that can s