The Bush administration should encourage the government of liberated Iraq to establish an Iraqi Oil Permanent Fund. There are a number of models, from Alberta to Kuwait and Norway to Chile.
In 1976, three major permanent funds, based on oil and gas revenues, were created: Kuwait's Reserve Fund for Future Generations; the Alberta Heritage Savings Trust Fund; and the Alaska Permanent Fund.
The Alberta fund no long receives revenue from oil and gas, although it still has a sizable principal of $11.6 billion.
The Kuwaiti fund "was created to give Kuwait's government investment income that was not dependent on swings in oil prices," according to the government information. The Kuwait fund is a dubious model because of its secretiveness. It won't disclose to the public even how much it has in assets. Certainly the operation of an Iraqi fund should be open to public scrutiny.
The model we prefer is the Alaska fund.
We like it because it has a distinctive feature: an annual dividend paid to residents of the state, which has been paid since 1982.
An Iraqi fund should pay its citizens an annual dividend.
The permanent fund would help ensure some revenue from oil is retained for future generations when oil sales slow. But it also could prevent at least some oil revenue received by the government from being squandered on bureaucratic spending.
An Iraqi permanent fund would help diversify the country's reliance on oil. In investing, a domestic allocation by the fund would nurture investment in domestic companies, helping the economy and building an enterprising class. An international allocation would help protect the fund from downturns in the domestic economy. The fund could even help develop a money management industry in the country. These are elements of a modern, sophisticated, free economy.
But the dividend should be an important part of the fund. It would give citizens an immediate stake in the wealth of Iraq's great natural resource and in the governance of the fund. It would give Iraqis stewardship, as well as a tangible sense of the value of the resource. It would give them an incentive to keep an eye on the operation of the fund. They would get to decide how to spend or save a portion of the fund in their best interests, allowing them to affect the country's economy directly.
Robert Storer, executive director of the Alaska Permanent Fund, said the dividend "created a watchdog over the government to make sure the permanent fund wasn't misused. The dividend created a vested interest" among residents. "A concern was that if citizens didn't have some level of vested interest, the permanent fund would be used for some other purpose that might dissipate the assets."
The dividend also helps residents "understand the importance of compounding in building the fund," he said. The Alaska fund's principal can't be touched without a referendum, Mr. Storer said.
The fund pays annual dividends, determined from a formula based on the fund's income. Alaskans, including resident aliens, regardless of age, each received $1,540.76 in 2002.
That dividend amounts to about as much as the per capita gross national product of Iraq, based on a 1999 study of the Alaska Permanent Fund dividend. Iraq's GNP per capita was put at $1,940. In fact, the study found Alaska's 1999 dividend of $1,769.84 was bigger than the per capita GNP of 102 countries, indicating the power of compounding and benefits of good stewardship of tax revenues from private exploitation of a natual resource. Iraq's oil revenues would be bigger than those of Alaska, but of course Iraq's population of 22 million is bigger than Alaska's of less than 1 million. But a much smaller dividend shouldn't diminish its importance to the people of Iraq.
Mr. Storer said he would welcome helping Iraqis set up a permanent fund. Over the years, "we've had a number of representatives of different countries come through here," he added.
With oil a major part of the Iraqi economy, safeguarding oil revenue for the Iraqi people has to be a top priority of the new government, both to help the economy and provide a guardian to foster a nascent democratic government. A permanent fund paying a dividend would help give assurance to the Iraqi people - after years of living under tyranny - that a major government institution is working in their interest.