Dear Editor,
Reference is made to a letter by Sasenarine Singh, which was published in Stabroek News, October 10, 2019, under the caption, `Huge footprint of executive in Natural Resource Fund law makes it unacceptable’. While I am happy that the writer took the time to read the Natural Resource Fund (NRF) Act, I am concerned that he appears not to understand, or is unwilling to accept, the strong features of the NRF that will ensure that it does not become a slush fund.
The writer points to four considerations that, in his opinion, should be observed when establishing a sovereign wealth fund (SWF). The first of these is the savings rule, which refers to how assets are transferred to the fund. In the case of the NRF, all petroleum revenues are directly deposited into the NRF. This is unlike many other jurisdictions, where only revenues that remain after government spending get deposited in the SWF. The superior deposit rule that governs our NRF will ensure that petroleum revenues are only spent if they are withdrawn in accordance with the rules set out in Part V of the NRF Act.
The second consideration the writer highlights is the spending rule, which dictates how assets are transferred from the SWF. As noted above, in many countries, it is only the remaining revenues, after government decides what it wishes to spend, that get deposited into a SWF. This is not ideal, since it could result in very little monies being saved and the fund being unable to meet its objectives. In the NRF, there is a clear withdrawal rule, the details of which can be found in Part VI and Part VII of the NRF Act.
As I explained in a previous letter to another newspaper, the maximum withdrawal is known as the Economically and Fiscally Sustainable Amount, which is bound by the smaller of an Economically Sustain-able Amount (ESA) and a Fiscally Sustainable Amount (FSA). A Macroeconomic Committee, comprising qualified representatives of the Government, Bank of Guyana, Private Sector Commission and Leader of the Opposition, as well as a leading international macroeconomic expert, is responsible for providing the Minister with a recommendation on the ESA, taking into account the effects of additional spending on Guyana’s economic competitiveness.
In analysing the impact of additional spending on the economic competitiveness of Guyana, the NRF Act mandates this Committee to consider key variables such as inflation, the exchange rate, economic growth, the composition of public spending, stability in public spending, and public debt. The Committee’s recommendation must be included in the annual budget proposal and annual report of the NRF, allowing the public to scrutinise any deviations from this advice. Further, the FSA is a mathematical formula that is delineated in the First Schedule of the NRF Act and acts as an upper limit on withdrawals from the NRF.
As the writer correctly points out, the Minister is responsible for appointing persons to the Macroeconomic Committee. To date, I have met with all willing nominating bodies to discuss the role of this and the Investment Committees. The work of these Committees is highly technical; as such, persons nominated to these Committees must be competent professionals, possessing advanced qualifications and significant relevant experience. These requirements are embedded in Sections 13(2), 20(3) and 20(4) of the Act. A remuneration framework was shared with all nominating bodies, to ensure that they can recruit suitably-qualified persons who can meaningfully contribute to the important work of the Committees. But what happens if the nominee, after being appointed is found to be incompetent, or is guilty of misconduct, or a more serious offence? Should this person continue to serve on this important Committee? In Sections 13(5) and 20(10) of the Act, the Minister is given the power to terminate an appointment, but not without reason. These sections state the following:
The Minister may terminate the appointment of any member of the Committee –
(a) who contravenes the provisions of this Act;
(b) if information relating to the conduct of a member, which could have
precluded that members’ appointment if it had been made available to the
Minister, is brought to the attention of the Minister;
(c) for incompetence;
(d) for misbehaviour or misconduct;
(e) for inability to perform the functions of that member’s office arising from
infirmity of body or mind; or
(f) for bankruptcy or insolvency.
Somewhat deceptively, the writer, while highlighting the power of the Minister to terminate an appointment, fails to also inform the public of the content of Sections 13(6) and 20(11) of the Act, which states:
Where it appears to the Minister that there is cause to terminate the appointment of a member under subsection (10) –
(a) the Minister shall notify the relevant nominating organisation and the member in writing and shall give the member an opportunity to submit an explanation or response, which shall be duly considered by the Minister before deciding whether to terminate the appointment of that member; and
(b) the nominating entity, where applicable, shall nominate a replacement for the member whose appointment was terminated.
The third consideration in setting up an SWF that is highlighted by the writer is the investment strategy, which speaks to the investment of assets. Part VIII of the NRF Act clearly identifies eligible asset classes for investments, as well as rules that govern how much is invested in “very safe investments”. An Investment Committee, comprising nominees of the Minister of Finance, the Minister responsible for petroleum, the Leader of the Opposition, and the Guyana Association of Bankers, is responsible for providing advice to the Minister on the Investment Mandate. This document provides guidance on the investments that can be made by the Bank of Guyana, as the operational manager of the NRF. Such an arrangement is not unlike those that exist in many other countries with highly regarded SWFs, such as Chile and Norway.
The final consideration emphasized by the writer, linked to many of the points highlighted above, is the governance strategy. Here, again, the writer makes a weak and deceptive attempt to convince the public that having the President or the Minister appoint members to various committees is abnormal or makes that appointee a “creature” of government. Editor, the President is responsible for appointing Judges to the Courts of Guyana. Having done so, do these Judges become creatures of the President? I’m sure a resounding “no” will be the answer.
The moneys in the NRF are public funds. As such, it is the responsibility of the nation’s government to appoint persons to boards, committees or other governance structures to manage the country’s resources. In fact, like the NRF, it is also the case in almost every SWF where the authority to appoint members to manage these funds lies in the hands of the country’s leader, President or the Minister of Finance. Examples include the Abu Dhabi Investment Authority in the United Arab Emirates, the Government of Singapore Investment Corporation (GIC), the Future Fund of Australia, Korea Investment Corporation of the Republic of Korea, the National Development Fund of Iran, and the China Investment Corporation in the People’s Republic of China.
However, where the NRF differs from many other SWFs around the world, is the inclusion of an oversight function of the public, through the incorporation of a Public Accountability and Oversight Committee (PAOC). The writer correctly highlights the important role of this Committee, which includes an assessment of the management of the NRF and utilization of withdrawals from the Fund. This is the most important committee established by the NRF Act and I look forward to receiving nominees for the PAOC from nominating bodies so that the public can ensure that the NRF is not corrupt, operates within the NRF Act and does not become a slush fund. Editor, please note that the PAOC comprises members who cannot be hand-picked by any government. In addition, no member of the Government or the Opposition is represented on this Committee, a bold step to enable it to act independently and in the best interest of the fund and country.
Editor, we continue to welcome the growing interest in the NRF, from detractors, supporters and well-wishers alike. That includes Mr. Sasenarine Singh.
Yours faithfully,
Winston Jordan, MP
Minister of Finance