Injecting gold, timber, cash into SWF will create structural imbalances in economy- Ramson

Sep 29, 2018 News

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Attorney-at-Law and Oil and Gas Consultant, Charles Ramson is of the opinion that if Guyana’s Sovereign wealth Fund is to resemble the model presented in the Green Paper, Guyana is in for a very rocky road ahead.
Ramson said this yesterday at Cara Lodge where he hosted a press conference.
There, Ramson reminded that his thesis for his Masters’ Degree in Oil and Gas Management focused on Sovereign Wealth Funds (SWF). Ramson boasted that the thesis got a perfect mark and was nominated for a national UK award for best thesis across all universities in the UK in a Geosciences field, “so SWF is an area I have particular knowledge.”
The lawyer listed seven “big mistakes” of the Green Paper that Minister of Finance, Winston Jordan presented to the National Assembly.
One of the mistakes Ramson highlighted was the co-mingling of funds. He told the media, “It is a mistake to have co-mingling of funds from other sources.”
Ramson reminded that the Green Paper says that petroleum revenues as well as “excess revenues” from mining and forestry will be deposited into the SWF called the Natural Resource Fund (NRF).
Ramson said that his view of this being a mistake is one shared by Eric Parrado, who is one of the leading world experts on SWFs.
The lawyer was keen to note that government, in the first place, failed to offer an explanation in the Green Paper as to what constitutes “excess revenues”.
Ramson noted that co-mingling of funds does not allow for a clear public picture on how much money the nation have actually earned from oil “and that is important for transparency so the public can hold the government accountable.”
Further, Ramson said that there is no “scientific or economic justification” for the depositing revenues from forestry into the NRF. He noted that forestry is a renewable natural resource which makes it totally different from any non-renewable commodity like oil or gold. “
Ramson posited, “So if we are adding a renewable natural resource like forestry then why not others like rice or sugar or fisheries or wildlife. In addition, forestry does not suffer severe price volatility or shocks, so there is no need to have to smooth expenditure which is one of the main purposes of a stabilization mechanism in a SWF. Further, as a renewable natural resource, it means there is inherent intergenerational equity quality unless the forest land is converted for some other non-agricultural use so that purpose is removed altogether.”
Ramson then focused on the fact that co-mingling will create economic imbalance.
He noted that a large portion of Guyana’s revenue is already obtained from gold. “So it forms a structural part of our economy. It means if one were to deposit “excess” revenues in the NRF it will create structural imbalances in our economy.” Ramson explained that if government deposits “excess” revenues from gold and forestry, then it will have to find money to replace the contributions those two commodities made to the National Budget.
Even further, Ramson noted that gold acts as a hedge in low oil price situations. He said, “If you chart the history of the oil price relative to that of the gold price you find gold prices rise or remain buoyant during an oil price collapse. A recent example was when Guyana was a net beneficiary of the oil price collapse during the last global financial crisis which caused gold prices to skyrocket and improvements in our balance of payments position.”
Ramson said that with first oil just a year and a half away. Guyana should have been passed the Green Paper stage. He said, “This Green Paper on Guyana’s SWF should have been presented three years ago when a sovereign wealth fund was first being discussed and a commitment made by the government to establish one. “
Ramson said that Guyana is now in a time conundrum: government still has to lay a bill in Parliament, that bill has to be sent to a Special Select Committee; there has to be a debate, the bill has to be passed, the President has to assent, the personnel has to be selected for the various committees; fiscal space has to be created in the budget, investment firms have to be shortlisted, reviewed and selected, other laws have to be changed to allow for revenue to deposited in the SWF; the Petroleum commission has not been established and there is specific reference here to it.
Ramson also opined that what the government is calling a Green Paper is more a White Paper. He said this as he pointed out that the paper already defines the government’s position on all of the major decisions and outlines a fiscal rule for Guyana and it does not expressly state that the point is to make decisions based on the outcome of the public discussion.
The Attorney said that with the Green Paper being this late, it should have been much more advanced and suited for Guyana’s needs.
He said, “When one is finally produced, it is riddled with mistakes, deficiencies and inaccurate or misleading analytical information. This Green Paper is, quite frankly, mediocre…and it is not fit for purpose. There is not sufficient clarity and explanation and it lacks depth. There is no explanation of the different types of Sovereign Wealth Funds and their respective purposes so Guyanese can understand. There is no explanation of the different types of fiscal rules and how it is benchmarked so Guyanese can understand. Reference is constantly made to the Norwegian SWF as a successful model but there is no proper explanation of its history and operation so Guyanese can understand and think about whether this model makes sense for us and if not, how it can be tailored. Even the explanation of the fiscal rule of Norway’s model is wrong. Part of the responsibility of any government as leaders of a group of people called nationals is to explain and teach.”

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