Today’s column starts my evaluation of the Green Paper on Guyana’s Sovereign Wealth Fund (SWF), laid by the Government of Guyana (GoG) in the National Assembly on August 8th, 2018. The GoG plans to establish the Fund in 2019 as the Natural Resources Fund (NRF). By way of introduction, my previous column had revisited earlier observations on SWFs (January 1 to February 5, 2017). Back then, the GoG had indicated that an SWF was one of three priorities, to be established in 2017. The implementation lag is duly noted!
Today’s column, therefore, continues to discuss the challenge represented by “external financial-economic interests,” insisting that Guyana spends its anticipated petroleum revenues along a “permanent income hypothesis path.” This challenge is listed eighth on my list of top-ten development challenges, which Guyana will face as petroleum revenues are spent.
The Ministry of Finance (MoF) summarily categorises the Green Paper into two parts: 1) managing petroleum revenues through the Fund; and 2) establishing a fiscal rule to govern Fund operations. My evaluation recognises these two categories, and treats with them in the order indicated. Additionally, the Green Paper describes the SWF as having two primary emphases. One emphasis is on “economic stability, savings and spending” and the other is on “transparency and accountability.” I recognise that both are embedded as controlling governors for the mechanisms of the SWF.
The Green Paper is organised around seven issues. Several of these are technical (or narrowly operational) and the remainder emphasise organisational/institutional/legal considerations. The Paper’s introductory Section provides a brief chronological background to its production and rationale.
The seven issues: are 1) whether a single or multiple funds?; 2) the “agreed purpose” of the SWF (NRF); 3) integration of Fund finances into national budgetary processes; 4) a recommended fiscal rule to govern Fund operations; 5) the modalities for managing the NRF; 6) broad guidelines governing Fund investments; and, finally, 7) NRF reporting and auditing procedures. I shall consider the technical issues related to the NRF in next week’s column. The remainder of today’s column focuses on organisational/institutional features.
My previous column indicated several necessary features for Guyana’s SWF. These reflect: 1) prevailing economic conditions; 2) the nature and size of the petroleum finds; and 3) development priorities set by the Green State Sustainable Development Vision and Goals. These features ensure the SWF cannot be simply purchased “off-the-shelf,” based on a “one-size-fits-all” template. By definition, the SWF has to be country-specific. The Green Paper broadly adopts this approach. Indeed, it explicitly asserts the need to be country-specific. But, how successful this will be, cannot be ascertained a priori. It will evolve out of practice; intention alone does not determine outcome, execution is required.
Furthermore, I had urged that the GoG approaches establishing the NRF as an iterative or evolving process. That is, mechanisms to provide feedback are essential. And, so too is the requirement for the GoG to be responsive to all constructive critiques. On paper, the Green State expresses openness to dialogue and feedback, but as noted above, execution determines the final outcome.
These considerations apart, the Green Paper declares for certain organisational options, noted below:
Green Paper Options
One such option is that the Green Paper prioritises the ‘Dutch Disease,’ the Presource and Resource Curse from among the developmental challenges. Personally, I find it hard to accept these are sufficiently representative of Guyana’s development challenges. The reason why I have highlighted ten (10) development challenges (in no particular order) is because I cannot rationalise reducing the challenges to fewer than ten. The Green Paper offers otherwise.
Secondly, the Green Paper opts for a single fund (NRF) designed to pursue multiple objectives (stabilisation, investment in development, intergenerational savings). It presents arguments for and against single versus multipole funds. It considers experiences of other countries in this regard. It seems to me, however, the crucial deciding factor is that, anticipated costs of multiple funds are too high compared to the value of likely benefits!
Thirdly, the NRF is based on petroleum revenues, as well as revenues derived from other natural resources: mining and forestry. Data presented last week showed 54 percent of SWF assets,, globally, are held against petroleum revenues. The remaining SWFs assets are financed from non-petroleum commodity revenues and “other” items. This is, therefore, not a novel option in the Green Paper. It is pragmatic and sensible.
Management of the NRF
Two leading bodies are responsible for the coming into existence of the NRF: Parliament (responsible for passing the NRF Act and the Budget); and the MoF (responsible for overall management of the NRF; the Budgetary process; and specific bodies the Act will bring into existence). This will be discussed further next week.
State Investors and Global Capitalist Accumulation
Because SWFs are made up of state investors/capital, they create potential sources of tension and conflict in today’s global economy, whose expansion and growth remain fundamentally driven by private market-based circuits of capital accumulation. I had observed last week that the purveyors of the “benefits of SWFs” are rarely honest enough to acknowledge that this is the status quo in their recommendations. As a result, naïve, uncritical elements, echo the “undisputed virtues and benefits” of SWFs, with no understanding of their limitations. Ignorance of the benefactors of the “status quo” is bliss to them.
On reading between the lines, however, I think the intended NRF appears somewhat sensitive to this consideration. It may be that, for strategic reasons, it does not acknowledge the basic contradiction pointed out above. I speculate here, because I have been in no way, manner or form, ever been involved in the preparation, planning or conceptualisation of the NRF. Indeed, I make this observation because the NRF, as drafted, postulates a good balance between fiscal rules (to be discussed next week) and discretionary action (as exercised by the peoples’ elected representatives in Parliament). As stated clearly last week, I believe so-called “experts” and “unelected” critics play useful roles. Nonetheless, they constitute the greatest dangers for subverting the public’s will, because of their so-called “certitudes,” where ignorance can be bliss for the benefactors from the status quo!
Attempts to cater for the state-private capital contradiction has led to coordinated self-regulation of SWFs, guided by international financial institutions. As I proceed, I shall develop on this theme in coming columns.