Thursday, July 29, 2010

SWF best kept offshore: Yauieb

ONE of the main objectives of a sovereign wealth fund (SWF) is to create a broad-based economy, The National reports.

“This will present adverse affects that are usually present in booming oil and gas economies,” Anthony Yauieb, chairman of the SWF working group at Port Moresby’s National Research Institute, said yesterday.

The working group’s recommended model of the SWF was to be a consolidation of three offshore funds:

  • Stabilisation fund;
  •  Infrastructure fund; and
  • Future or savings fund.

One of the reasons of having the SWF kept off-shore is to prevent exchange rate appreciation and the effect which is often called “Dutch disease”.

Dutch disease, in economics, refers to the decline in manufacturing sector due to increase in exploitation of natural resources.

The theory is that the increase in revenue from natural resources affects the country by raising its exchange rate and which will make the manufacturing and agriculture sectors less competitive.

Yauieb said the SWF would be kept offshore because past onshore funds like the Mineral Resources Stabilisation Fund and the trust accounts, were depleted due to inefficient management arrangements. 

Central Bank deputy governor Benny Popoitai, who is the working group deputy chairman, said the idea of the SWF was important with the LNG project promising significant economic growth as well as improving the living standards of people.

Popoitai stressed the importance of properly managing the flow of proceeds from the LNG project.

“Managing the flow from the LNG project is very important.

“If this flow is not sterilised and quarantined then it will lead to high liquidity,” he said, adding that the government in its wisdom had set up his group to work towards creating arrangements that would “assist in insulating and sterilising” the flow of money from the  LNG project.

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