By Kiana Wilburg
If the Government of Guyana is truly serious about ensuring that transparency and accountability are the underlying principles of the Natural Resource Fund (NRF), then it will seek without hesitation, to join the revered International Forum on Sovereign Wealth Funds (IFSWF).
According to the Natural Resource Governance Institute (NRGI), IFSWF members agreed from the inception to have a set of principles called the Santiago Principles, and practices for Sovereign Wealth Funds.
The NRGI said that these principles, adopted in 2008, emerged from two fears: First, countries receiving Sovereign Wealth Fund (SWF) investments worried that large government investors might use their financial power to pursue political or strategic objectives rather than purely financial returns.
Second, since SWFs are large and growing in size, failure of just one of the world’s largest SWFs could trigger a global financial crisis.
The Institute noted that the 24 voluntary principles are broken down into three sets of standards: legal framework, objectives, and coordination with macroeconomic policies; institutional and governance structure; and investment and risk management framework.
The transparency body said that they are meant to encourage SWFs to behave openly and predictably and to seek financial returns rather than support a foreign policy agenda. It said that openness, predictability and market orientation, in turn, are expected to ease recipient country fears of predatory investments and promote sound internal fund management.
NRGI stated, “Being a member of the IFSWF and agreeing to the Santiago Principles provides an incentive to publish key information, make clear the roles and responsibilities of key bodies and make decisions openly.
“Though the principles are voluntary, peer pressure and a desire to be perceived in a good light by the international community and by recipients of SWF investments can encourage compliance. In fact, there is evidence that belonging to the IFSWF may have a positive effect on fund transparency and governance.”
It added, “An examination of Economist and Fund Expert, EdwinTruman’s, SWF Scoreboard scores shows that members of IFSWF in 2012 improved their fund scores by 17 percent on average between 2007 and 2012, whereas those who were not members improved by only five percent on average.”
NRGI said that on the other hand, countries which are members of the IFSWF but who do not comply with the majority of the principles, such as Qatar and the United Arab Emirates, have seriously undermined their own international credibility.
In addition to the advice from the NRGI, one of the leading financial institutions and development partners for Guyana, the World Bank, has noted that the scrutiny of a nation’s Natural Resource Fund cannot rest with the government alone.
It stressed that oversight bodies which are independent of political influence must also have a role in ensuring transparency of the Fund.The institution’s advice is predicated on the well-documented cases of resource funds which are not properly managed due to lack of oversight by independent actors. The Bank said that too often, Natural Resource Funds are only accountable to a few persons, who are political appointments.
It said that in most countries, constraint and accountability are ideally spelled out in legislation. And most governments know that independent and regular audits are also essential. It stressed however that these are oftentimes not practiced.
For nations interested in ensuring accountability of their NRFs, the World Bank advised that good governance practices must include several layers of transparency mechanisms. It said that these would include both vertical and horizontal accountability.The World Bank explained that vertical accountability comes with management reporting that leads, ultimately, to a minister. Horizontal accountability, however, is provided by regular reporting on the Fund’s performance to elected officials who are independent of government. The Bank said that this type of accountability also includes widely available and readily accessible public information on the Fund.
“Transparency with respect to all aspects of fund operation and performance is generally regarded as indispensable to achieving good governance. This can be achieved through press releases, publications and audits which are available on the internet.”Further to this, the Bank said that the presence of watchdog non-governmental organizations (NGOs) strengthens horizontal accountability.
As with most Funds, the World Bank said that the management process will often involve the use of asset managers as well as internal and external managers. It stressed, however, that the recruitment of any asset manager should be made as independent as possible. It stressed too that regular, independent audits are essential if confidence in the Fund is to be established and maintained.
The World Bank said that Norway is a prime example of the independent process that is needed to manage a Fund. In the case of Norway, an external performance audit is carried out and published.
This is in addition to the internal audit on the country’s NRF. The Bank said that these systems of control are essential to making any NRF a success.
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