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Weak policies will give officials easy access to cookie jar
– Strong Sovereign Wealth Fund policy crucial to Guyana’s success as an oil producing country—International experts
By Abena Rockcliffe-Campbell
While Guyana may be approaching its economic pinnacle, the possibility of the country ending
Gregory Harrington
up worse off is very much real. Experts are noting several factors that can land Guyana in the proverbial pickle. These factors range from the country not being able to secure the best possible deals from oil companies to the mismanagement of the garnered wealth and high levels of corruption.
A proven way of minimizing the possibilities of high levels of corruption is the establishment of a Sovereign Wealth Fund (SWF). This is a government-owned investment fund. It has been set up by many countries with oil wealth, and there are several models to choose from.
International experts have been lending advice to Guyana on how it can make the best of a SWF.
Just last evening, three partners from international law firm—Arnold and Porter Kaye Scholer— facilitated a lecture on the SWF at the Marriott Guyana. Arnold and Porter Kaye Scholer is versed in sovereign finance, corporate finance, corporate governing, etc.
The three partners—Darren Skinner, Whitney Debevoise and Gregory Harrington—focused their lecture on an introduction to structure, governance and legal aspects of the SWF.
Kaieteur News was able to secure an interview prior to the lecture. During the exclusive, the three experts zeroed in on how Guyana can benefit from the establishment of a SWF. They noted that it is not for them to recommend which model of the SWF is best suited for Guyana and said that Guyana will choose its model based on its objective.
Whitney Debevoise
However, Debevoise said that no matter the objective, governance is important. He said that good governance in this regard starts with having a clear legal framework for the fund.
Debevoise said that there are ways in which one can draft the policy to govern a SWF leaving much ambiguity. He said that such ambiguity presents an easy opportunity for officials to take advantage of the fund for the benefits of themselves.
Therefore, said Debevoise, there needs to be a clear legal framework. He said that there needs to be clear accountability mechanisms and levels of oversight. He said that attention needs to be paid to the way in which people who are going to have responsibility for the fund are appointed, as well as the political accountability for those appointments.
He said that there is also a need for mechanisms for internal and external audits. The expert said that it is also important to be transparent about the volume of money coming in and about the way the money is being invested.
Debevoise said that there should be transparency in the guidelines and in the process of establishing the guidelines. There should also be clear rules about who establishes the guidelines, how those persons are to be appointed, the format for them to report every step of the way and the process for changing or amending the guidelines.
Darren Skinner
Harrington said that it is very important to have clear rules about when money can be taken out of the fund. He said that this creates discipline in terms of spending.
Harrington was keen to note that successful SWFs managed by various countries have very clear rules on when you can draw down. He said the clearer the rules are, the more successful the fund is likely to be.
Agreeing with what his colleague said, Debevoise asserted that these requirements and guidelines should be on one or more instruments “but the whole package has to have these elements of transparency.” He said that some rules can be in the authorizing legislation and some can be in separate guidelines that are to be established.
Harrington and Skinner spoke about how bad it can be if Guyana decides not to get a SWF altogether. They noted that the SWF contributes to stability.
They said that the absence of stabilization will spell problems when the price of the commodity goes down; then there is a shortfall in the Budget.
Harrington said that the risk of not having a SWF is becoming highly dependent on a commodity price from what is an ultimately a depleting asset. He said that the idea is to take that finite depleting asset and turn it into longer term wealth. He said that there are countries that made the mistake in becoming dependent on the commodity and end up in problems especially when fixed costs have been created.
“Creating fixed expenses based on variable income is not good.”
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