SEVERAL consumers over the last several weeks have been asking us to give some explanation of the Natural Resources Fund (NRF). They claim that themselves, the public at large and even the employees in the Ministries under which the Fund falls are ignorant of what the Fund is or what are its functions. The EXXON exploration contract and the Natural Resources Fund have been submerged in bitter verbal exchanges. Each side of the divide accused the other of betraying the national interest and the media focused on the recriminations and explained very little about the NRF. The public’s lack of knowledge of the Fund is therefore understandable. In this offering, we shall try to give readers enough for them to understand what the Fund is. Detailed knowledge of it could only be obtained by reading the legislation which established the Fund. Natural Resources Funds are often called Sovereign Wealth Funds and are today found in almost all oil-producing countries and there are several models of them, each claiming to have certain specific advantages.
Many years ago, when oil deposits were first discovered in developing countries, the international oil companies were able to make one-sided contracts with governments whereby the companies were able to commandeer the greater part of the oil wealth, leaving a smaller part to the politicians and kings who had colluded with them. The countries and their populations gained very little and remained in poverty and underdevelopment. The pattern, though most obvious in oil, occurred with other resources. Guyana, for example, at one time earned very lucrative incomes from Sugar and Bauxite, but none of this was saved or invested with the result that when hard times befell these industries, there was much unemployment and suffering.
In the 20th century, much after World War II, people of the oil-producing countries and their politicians began to understand that Oil resources were finite and their wealth had to be conserved and properly invested, or they would slip again into poverty and underdevelopment when prices fell or resources diminished. With the growth of the globalised world, all countries began to understand their national interest and the concept of Sovereign Wealth or Natural Resources Funds began to take root.
As a guide for the administration of Natural Resources Funds, the 24 Santiago Principles evolved and were universally accepted. These 24 guidelines advocated good governance, accountability, transparency, prudent investment and maintaining a stable and open investment climate. With respect to the Natural Resources Fund of Guyana, all political parties and the population as a whole desire that politicians are distanced from the assets of the Fund; that all revenues from Oil and Gas are widely known and deposited in the Bank and all withdrawals from the Fund be also widely known; that some of the funds be used for social development such as Education, Health, Housing, Culture and ensuring the population is well fed and as fully employed as possible. All are also agreed that a portion of the Fund is invested in economic development in wealth-generating and self-perpetuating Industry and Services, and most importantly, that a fair proportion of the Fund remains untouched for the inheritance of future generations.
There are several models of Natural Resources/ Sovereign Wealth Funds available. They all resemble each other; a country’s leadership chooses a model it evaluates to be best suited for its country’s requirements.
We will describe the essential framework of the Fund model Guyana uses: The Guyana Natural Resources Fund keeps to the guidelines of the Santiago Principles. In its architecture, it has a Public Accountability and Oversight Committee of nine members. These nine members consist of one member from the National Assembly, three religious community representatives, two representatives of the Private Sector, two representatives of organised labour, and one representative of the professions. Political parties are not represented on this Committee.
Then there is a Board of Directors of the Fund consisting of five members. These are appointed by the President in accordance with a number of prescriptions which eschew subjectivity on the part of the President. Of the five Directors, one must be appointed by the National Assembly and one from the Private Sector.
It is expected that the funds will be safely and profitably invested. Thus, there is an Investment Committee which will have a Private Manager and an Investment Manager. Since investment is a highly skilled and professional activity, an Investment and Advisory Services Company has been engaged to work in tandem with the Committee.
In its operationalisation, the monies of the Fund are deposited into the Federal Reserve Bank of the United States, with the Bank of Guyana having responsibility for operational management. The Bank of Guyana would not be acting in isolation but could look to the involvement of the public accountability and Oversight Committee, the Board of Directors and the Ministry of Finance.
There is a secure system of withdrawal of money from the Fund. All withdrawals must be deposited into the Consolidated Fund and will be gazetted. It must be remembered that cognisance of knowledge of the Government’s economic policy and development agenda is always ubiquitous.
The ultimate oversight body of the Fund is the National Assembly. There must be monthly, quarterly and Annual Reports on the Fund and the Annual Report has to be tabled in the National Assembly and the Fund is subject to both external and internal audit. Officers and others associated with the Fund who may commit any misdemeanour would be brought before the Courts and penalties are exemplary.
The Fund has just begun to be operational and close attention has to be paid how its procedures and personnel are performing.