¹The Centre for Euro-Asian Studies, The University of Reading, Whiteknights, PO Box 218, Reading, RG6 6AA, UK. E-mail: y.kaluyzhnova@reading.ac.uk

^†My sincere appreciation goes to Mark Casson, Jeff Miller and Maria Vagliasindi who made valuable criticism and ideas for improvement. I am grateful for the comments of the anonymous referees. Max Watson's creative suggestions fundamentally improved the quality of the paper.

Abstract

This paper discusses the contribution that oil funds can make to the policy challenges facing resource-rich countries. To set the stage, it reviews the potential role of such funds in the broader context of macroeconomic and energy policies – taking into account uncertainty about oil prices, the impact of institutional costs, and problems of organisational design. The paper then highlights the critical role of governance issues in three respects: defining transparently the goals of each fund; communicating these goals to build a constituency of public support; and ensuring the efficient and transparent management of the fund on an ongoing basis. Two recent cases in the Caspian Sea region are then discussed: Azerbaijan and Kazakhstan. In both instances, the paper highlights issues of coordination and efficiency in the investment policies of the funds. While there are attempts to monitor their transparency through public awareness and websites, the author believes that this in itself is no substitute for a comprehensive governance strategy. Moreover, improved transparency can help inform the debate about strategic issues concerning the goals for such funds, and their contribution to the country's development strategy.