Oil, Govern­ment Take & Spend­ing: Nav­i­gat­ing Guyana’s De­vel­op­ment Chal­lenges - 15

Stabroek News Sunday - - LETTERS -


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.

BS­tate In­vestors and Global Cap­i­tal­ist Ac­cu­mu­la­tion ecause 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 mar­ket­based 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.

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