Dear Editor,
In an earlier two-part critique of Guyana’s Natural Resource Fund Act (2019) I drew attention to two issues. First, that the way in which deposits are made into the Natural Resource Fund means that the NRF is like “the tail” wagging “the dog” of Guyana’s national finances. Second, that the declared purpose for which the NRF was established went far beyond what a sovereign wealth fund can do. In effect the NRF was envisaged as Guyana’s main bulwark against “Dutch disease”, a macroeconomic task that it, alone, really cannot achieve. But there is more than just these matters at issue. So, what ELSE is wrong with the NRF? Well, the leadership of the Fund is unhelpfully intertwined with other government institutions. This is evident if one cuts to the chase by considering the scenario,” It’s all gone wrong, who can I fire?” A practical answer is not at all clear. Article 11 of the Act states “The Minister (of Finance) shall be responsible for the overall management of the Fund …”! Further, Article 12 adds “The Bank (of Guyana) shall be responsible for the operational management of the Fund …”! So, the answer to the “who can I fire” question is either;
a) the Minister of Finance, with the likely attendant collateral damage to the responsibilities of the Minister’s “day job” that include management of the nation’s finances and preparation of the Budget, or,
b) the Governor of the Bank of Guyana, again with likely collateral damage to the management of the Government’s bank accounts, the stability of the Guyanese dollar and the regulation of the banking sector that provides financial fuel for the economy.
The issue is further compounded by Article 4 which states “All investments made pursuant to this Act, including those managed by private managers, shall be held in the name of the Bank …” Now we can see the underlying problem. The Act does not establish the Fund as a separate, legal, corporate entity. As such, it doesn’t have to have a manager that is, at least legally, distinct from Government. It doesn’t even have to have its own bank account. That really cannot stand! In a more conventional arrangement, the Act would establish the Fund as a legal, corporate entity. That entity would be led by a Fund Manager with the requisite financial, technical and organisational skills. The Fund would be supervised by a Board of Directors responsible for the fulfilment of its purpose and, in particular, ensuring that the Fund’s Investment Policy is delivered. There would be an Investment Committee responsible for ensuring the technical implementation of the Investment Policy and for supervising Risk Management. The Fund Manager would be a member of both the Board of Directors and the Investment Committee.
The Fund would keep its own operational accounts but there would also be a Fund Administrator (usually an independent corporate entity) that maintains the official accounts of the Fund. The Administrator also provides administrative, compliance and related services. The Fund’s Auditors (another independent service provider) would conduct the annual audit of accounts. The Fund would also engage a legal firm to help navigate the increasingly complex body of financial legislation in different jurisdictions. There are some elements of this structure in the Act, but they do not fit together well in the absence of the Fund’s status as a legal, corporate entity. The Fund’s entanglement with extant governmental entities only makes things worse by confusing a leadership structure that should be quite simple.
Having criticised three major flaws in Guyana’s Natural Resource Fund Act (2019), I must draw attention to the Act’s admirable strengths in reporting and transparency. Part III of the Act, “Public oversight of the Fund”, details reporting arrangements for the fund that are suffused with an ethos of transparency. Its formulation of the nation as being embodied in the President, Parliament and People of Guyana when it comes to formal reporting of the Fund’s activity seems strikingly appropriate and must be commended. The Natural Resource Fund, Guyana’s sovereign wealth fund, will be a critically important part of the nation’s macroeconomic and financial infrastructure post Oil. It is right that an urgent and rapid effort was made to establish it. That first effort, though, has flaws that need correction. The current administration presented another version of the Act earlier this month. That version has not been well received by commentators. I wonder if the new, revised Act is the product of a genuinely “bi-partisan” process informed by analysis of the 2019 Act and the experience of successful sovereign wealth funds and their architects.
Sincerely,
David Pollard
Pollards Et Filles (Guyana)
Inc.
