Commodity booms, coalitional politics and government intervention in credit markets

Abstract

ABSTRACTScholars of the ‘resource curse’ increasingly agree that strong institutions can help countries avoid the pitfalls associated with abundant natural resource wealth. This paper argues that certain political coalitions can serve a similar function in the context of weak institutions. To explicate this argument, this paper examines how international commodity booms regularly create credit demand that surpasses available supply, often impelling exporters to seek government assistance with obtaining credit. Four case studies illustrate how coalitional politics dictated governmental responses to such demands. Where exporters were members of the ruling coalition (Chile and Argentina), their needs sparked credit sector reform and government help to access credit. Where exporters were excluded from political power (Colombia and Nigeria), government policy hindered their economic goals. These findings suggest that the resource curse may pivot on coalitional politics in important respects. The paper concludes by assessing this possibility with respect to strategies that are commonly proposed to help developing countries manage their natural resource wealth.