Oil, Gov­ern­ment Take & Spend­ing: Nav­i­gat­ing Guyana’s De­vel­op­ment Chal­lenges - 19

Stabroek News Sunday - - LETTERS -

In­tro­duc­tion

To­day’s col­umn con­cludes my over­all as­sess­ment and eval­u­a­tion of Guyana’s Green Pa­per on its pro­posed Nat­u­ral Re­sources Fund (NRF). First, I shall of­fer a few spe­cific com­ments on the pro­posed gov­er­nance of the NRF. Fol­low­ing that, I wrap-up the col­umn with sev­eral broad ob­ser­va­tions of the NRF and its pro­posed op­er­a­tions.

Gov­er­nance

Gen­er­ally, I ac­cept the pre­vail­ing stan­dard for­mu­la­tion/def­i­ni­tion of gov­er­nance, as ap­plied to gov­ern­ment-type in­sti­tu­tions, like the NRF. I also ac­cept the widely used eight stan­dard el­e­ments or fea­tures of good gov­er­nance. I there­fore, sub­scribe to the view that: “in its purest form gov­er­nance refers to the struc­ture and de­ci­sion-mak­ing process that al­low (the NRF) to con­duct its af­fairs”. This for­mu­la­tion ap­plies to the NRF’s gov­ern­ing leg­is­la­tion; its reg­u­la­tions; the stan­dards set; and, the ways in which these are im­ple­mented. “Gov­er­nance there­fore, is the process of de­ci­sion mak­ing and the pro­cesses by which de­ci­sions are im­ple­mented (or not im­ple­mented)” -Wikipedia. This eval­u­a­tion, how­ever, is best de­ter­mined dur­ing the course of the NRF’s ac­tual op­er­a­tions. State­ments of in­tent, that is, what the leg­is­la­tion and struc­ture pro­pose, are never suf­fi­cient, by them­selves, to prove the qual­ity of gov­er­nance. This qual­ity is an out­come. And, as such, it is de­pen­dent on prac­tice.

Based on the in­di­ca­tions given above, my ap­proach to gov­er­nance also sub­scribes to the eight el­e­ments, which the lit­er­a­ture recog­nises as es­sen­tial for “good gov­er­nance.” These are: the rule of law; par­tic­i­pa­tion; trans­parency; re­spon­sive­ness; con­sen­sus ori­en­ta­tion; eq­uity; ef­fec­tive­ness and ef­fi­ciency; and, ac­count­abil­ity. I be­lieve most read­ers would ei­ther go along with this, or sub­scribe to a sim­i­lar for­mu­la­tion in the case of gov­er­nance of the NRF.

Pro­posed Man­age­ment

As noted in pre­vi­ous columns, the Green Pa­per elab­o­rates on the man­age­ment of the NRF. Briefly, the Na­tional As­sem­bly is re­spon­si­ble for pass­ing the NRF Act; ap­prov­ing the Na­tional Bud­get (in­clud­ing with­drawals from the NRF); and, re­view­ing the NRF’s An­nual Re­port. The Min­istry of Fi­nance (MoF) is “re­spon­si­ble for over­all man­age­ment of the NRF” (Green Pa­per Para 59); the An­nual Bud­get Pro­posal; cal­cu­lat­ing the Fis­cally Sus­tain­able Amount (FSA); draft­ing the In­vest­ment Man­date; pre­par­ing the An­nual Re­port; and, re­port­ing on the NRF through the An­nual Bud­get; as well as en­ter­ing into an Op­er­a­tional Agree­ment. Ad­di­tion­ally, the Seven-Mem­ber, Sovereign In­vest­ment Com­mit­tee is “re­spon­si­ble for ad­vis­ing the (MoF) on the In­vest­ment Man­date.” And this com­mit­tee is to be ap­pointed by the Min­is­ter of Fi­nance.

A Se­nior In­vest­ment Ad­vi­sor and An­a­lyst is to be re­cruited “via in­ter­na­tional open ten­der,” This Ad­vi­sor is re­spon­si­ble for, among other du­ties: - as­sist­ing the Min­is­ter of Fi­nance to draft the In­vest­ment Man­date - re­port­ing and mon­i­tor­ing the frame­work and per­for­mance of the NRF - sup­port­ing the Sovereign In­vest­ment Com­mit­tee - aid in mon­i­tor­ing the in­vest­ment ac­tiv­i­ties of the Fund, as set out in the In­vest­ment

Man­date.

The Bank of Guyana is the “Op­er­a­tional Man­ager of the Fund” and man­ages it in ac­cor­dance with the In­vest­ment Man­date and Op­er­a­tional Agree­ment.

Cri­tique

As I have re­peat­edly stressed, the NRF con­sti­tutes state-owned cap­i­tal ded­i­cated to in­vest­ing in pri­vate global fi­nan­cial and cap­i­tal mar­kets. In this re­gard, it faces the fun­da­men­tal co­nun­drum that these mar­kets con­sti­tute a uni­verse of pre­dom­i­nantly pri­vate in­vestors, who re­spond to risk-re­ward pri­vate mar­ket in­cen­tives. To avoid con­flict, SWFs through the 24 San­ti­ago Prin­ci­ples, seek to es­tab­lish op­er­a­tional dis­tance be­tween the own­ers of these Funds (States) and their pri­vate in­vestor-ori­ented/mo­ti­vated man­age­ment work­ing on their be­half.

The com­pelling in­fer­ence is that State in­flu­ence is in­ef­fi­cient. It dis­torts pri­vate risk-re­ward in­cen­tive be­hav­iour. And, in­deed, this can be true. How­ever, the ev­i­dence against the dis­tort­ing ef­fects of pri­vate risk-re­turn driven be­hav­iour is also quite enor­mous. En­com­pass­ing the ex­pe­ri­ences of what are known as the “Great De­pres­sion of the 1930s” and the “Great Re­ces­sion of 2007-2008”, along with at least six or seven ma­jor fi­nan­cial crises in-be­tween these two pe­ri­ods (1930s and the 2000s), this is quite ap­par­ent.

Com­men­ta­tors on the Guyana NRF Green Pa­per take it for granted that the po­si­tion de­clared in Oil Now Re­port (Au­gust 10, 2018) is sup­ported by im­pec­ca­ble logic: “the pro­posed mech­a­nism for the man­age­ment of the Fund, which places sig­nif­i­cant author­ity in the Min­istry of Fi­nance is be­ing crit­i­cized in the pub­lic do­main.” These crit­i­cisms im­plic­itly as­sume the su­pe­ri­or­ity of “pri­vate and non-state” man­age­ment. How­ever, as I have per­sis­tently pro­claimed, I am deeply skep­ti­cal of “un­elected ex­perts” and/or spokesper­sons, with no rep­re­sen­ta­tive cre­den­tials, mak­ing and im­ple­ment­ing de­ci­sions on be­half of the broad masses of Guyanese. I am deeply skep­ti­cal of their re­vealed pref­er­ence for pur­su­ing their self-in­ter­ests and/or hid­den agen­das, first.

This prin­ci­pled po­si­tion does not seek to give “elected of­fi­cials” a free pass. To the con­trary, it staunchly ac­knowl­edges that, there are greater “un-demo­cratic chal­lenges” aris­ing from the “non-elected,” who are pur­port­ing to be act­ing on be­half of the masses!His­tor­i­cal ex­pe­ri­ences re­veal many in­stances in­di­cat­ing pri­vate cor­rup­tion in global fi­nan­cial mar­kets is en­demic; and, in­deed, be­yond be­ing ra­tio­nally con­tained. This ranges from sleaze and nepo­tism to out­right fraud and theft on a hu­mon­gous scale. The eas­ier fight for Guyanese to win is forc­ing their elec­tive rep­re­sen­ta­tives to com­mit to fis­cal rules in the na­tional in­ter­est. Guyanese can­not sim­ply rely on “clean” pri­vate in­ter­ests to de­liver on their be­half.

Con­clu­sion

Some gen­eral ob­ser­va­tions are war­ranted in con­clu­sion. First, no mat­ter how good the fis­cal rules are on pa­per, by them­selves they may not suf­fice. Ex­pe­ri­ence has shown that fis­cal rules can be less clear and thereby com­pli­cate macroe­co­nomic man­age­ment of the na­tion’s af­fairs, mak­ing this less ac­count­able. Sec­ond, al­most any fis­cal rule could be of ben­e­fit to a Fund. Funds that have no fis­cal rules are very dan­ger­ous. Third, ex­pe­ri­ence in­di­cates the great ben­e­fit of re­ly­ing on rules, which are de­signed to suit a coun­try’s eco-en­vi­ron­ment. These are likely to be far more use­ful, than ones “taken-off-theshelf” and built on “a one-size fits all tem­plate.” Fourth, some read­ers have noted Sovereign Wealth Funds are sim­i­lar in some ways to Cen­tral Bank re­serves, which are also state-owned for­eign-held as­sets. How­ever, the crit­i­cal dif­fer­ence is that Cen­tral Bank hold­ings are there to pro­tect the na­tional cur­rency in global for­eign ex­change mar­kets and the do­mes­tic bank­ing sys­tem. Sovereign Wealth Funds have the three pur­poses that I have iden­ti­fied ear­lier. These re­quire mak­ing net re­turns on in­vested as­sets.

Fi­nally, NRFs are im­proved to the ex­tent po­ten­tial fu­ture gov­ern­ments join in sup­port of the fis­cal rules. With­out such a for­ward-look­ing com­pact, SWFs are likely to be short-lived, and cer­tainly not sur­vive “Gov­ern­ments-in-tran­si­tion.”

Next week I as­sess the per­ma­nent in­come hy­poth­e­sis as a fis­cal rule. Last Up­date: 482.5 Cur­rent Up­date: 499.36 Move­ment: 3.48% YTD Move­ment: 69.67%

LUCAS STOCK IN­DEX

The Lucas Stock In­dex (LSI) rose 3.48 per cent dur­ing the fifth pe­riod of trad­ing in Oc­to­ber, 2018. The stocks of four com­pa­nies were traded, with 212,184 shares chang­ing hands. There were two Climbers and one Tum­bler. The stocks of the De­mer­ara Dis­tillers Lim­ited (DDL) rose 14.29 per cent on the sale of 35,000 shares. The stocks of the Guyana Bank for Trade & In­dus­try (BTI) rose 11.30 per cent on the sale of 2,492 shares. On the other hand, the shares of the De­mer­ara To­bacco Com­pany (DTC) de­clined 2.56 per cent on the sale of 38 shares. In the mean­time, the stocks of De­mer­ara Bank Lim­ited (DBL) re­mained un­changed on the sale of 174,654 shares. The LSI closed at 499.36.

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