Private sector proposes “non-political” Sovereign Wealth Fund; Budget Director allays fears of politicized mechanism

Last Updated on Thursday, 13 September 2018, 16:14 by Denis Chabrol

A Guyana Manufacturing and Services Association (GMSA)- organised forum on the proposed Sovereign Wealth Fund (SWF) on Thursday heard strong recommendations for the creation of a “non-political” legal entity to manage oil and other revenues, but Ministry of Finance Budget Director, Sonya Roopnauth says government’s model guarantees the involvement of highly qualified experts.

“It is very difficult to take away the hint of politics in many things that we do but we can insulate ourselves from it to some extent,” Executive member of the Private Sector Sector Commission (PSC), Ramesh Persaud said during his proposal to the civil society forum.

Roopnauth said representatives on a number of SWF committees would be drawn from the political opposition and organisations such as the Bankers’ Association, all based on relevant qualifications. “The one equalising criteria right now is to make sure that the people are qualified, that we are not just picking people at random to make sure that the people who are on the committees are competent to do the job that the committee will be required to do,” she said.

The PSC official recommended that a seven to nine-member board be appointed, based on nominations by various interest groups to the appointments committee of the National Assembly. The line-up could include a Senior Counsel recommended by the Guyana Bar Association, an Accountant with at least 15 years experience as nominated by the Institute of Chartered Accountants of Guyana, a world-renowned doctor in Economics vetted nominated by the Council of the University of Guyana instead of the Minister of Finance, a representative of the Caribbean Development Bank or the Inter-American Development, the Chief Executive Officer of a publicly-listed company in Guyana selected by the Guyana Securities Council,  board member of a Fortune 500 company, a representative of the trade union movement and the parliamentary Human Rights Commission.

“I don’t expect everybody to agree with all of this but I give you an example of how a board could be built that could be non-political,” said Persaud who is the Chairman of the PSC’s Economics and Finance sub-committee.

He added that the board should be appointed for three years in the first instance and no director should serve for more than two terms. After the board is appointed, Persaud said the members should select their chairman instead of the Minister of Finance.

The PSC official said after the Board, which should not be involved in individual investment decisions, is in place it should appoint their  executives and Fund Managers and be involved in policy-making and performance management.

Under his model, the Bank of Guyana or the Finance Minister should not be involved in the operations of  his proposed hybrid investment- banking institution. Instead,  Persaud said the Bank of Guyana should be the banker and supervisor-regulator.

Also forming part of his recommended SWF structure is for the facility to be subjected to the same “rigidity” as publicly traded companies as those listed in international stock exchanges to provide for timely auditing and publication of quarterly reports in the media. He said the auditor of the Fund should be audited every three years by an auditor that should be nominated by the Auditor General through a public tender and submitted for approval by the National Assembly.

In terms of accessing the funds, Persaud said some of the monies should be set aside to fund Guyana government projects based on advice by the Macroeconomic Council for annual budgets. In turn, he said the government would have to seek approval from the SWF in the same way it would approach any international financial institution. “It is my view that the capital element of the fund should not be used for any consumption purpose; that the capital element of the fund should only be used for infrastructure and investment in income-generating activity,” he said. The limit, he said, would have to determined by a fiscal approval.

Under his model, the SWF would generate income to be distributed as dividends to government for consumption purposes.

For her part, the Ministry of Finance’s Budget Director said there was  no reason to panic about the Finance Minister’s role in the SWF process as is the case in several other countries. “I think what is important is that the language in the legislation that we try to craft together is language that prevents any manipulation of the legislation,” she said.

Roopnauth emphasised that the Macroeconomic Committee would be made up of highly qualified professionals. The Finance Ministry official explained that Macroeconomic Committee “is not simply a set of people randomly named and appointed” bu would need at least 10 years of experience in Applied Macroeconomics, a minimum of a Post Graduate Degree in Economics and the leading expert, who would be appointed by the Minister, would hold a  doctoral degree in Macroeconomics so we want to make sure that the Committee is a Committee of professionals so when they sit down to consider the Macroeconomic issues and are looking to the economically sustainable amount and when they have to advise on issues, these are people who are qualified, not simply named by a political head- so just to assure you,” she said.

Mindful of inflation, rising costs and appreciation of the Guyana dollar should huge amounts of foreign exchange from oil and other natural resources be disbursed into the economy, she said the Macroeconomic Committee would be responsible for determining the maximum amount of “economically sustainable” cash that should be withdrawn while maintaining competitiveness.

Similarly, the Sovereign Investment Committee would include persons qualified in financial investments, all of whom would be hired through an open and recruitment process. “It is not somebody being appointed or handpicked,” she said adding that she was aware of concerns about several mentions of the Finance Minister in the SWF Green Paper that was presented in the House last month.

The Sovereign Investment Committee would be responsible, she said, for advising the Finance Minister on the investment mandate based on the overall SWF objectives- stabilisation, savings and development spending- as well as current conditions, opportunities and constraints, funds are available for withdrawals, and ensuring a long-term rate of return of at least three percent annually while minimising the risk.

Alfred Bhulai of Transparency Institute of Guyana Inc. promised to take Persaud’s “detailed, constructive” proposal to the anti-corruption non-governmental watchdog.