Changing the HSF

In reality, making changes was contemplated at inception of the fund and will be needed as the environment changes. There are a number of funds globally that have had alterations to their original structure. As an example, Norway has altered the structure and orientation of its Sovereign Wealth Fund (SWF) several times since it was first established in 1990.

These modifications were made as the environment in which the country found itself changed.

Our finance minister appears to be suggesting that there should be a fund to allow for long term withdrawal. This would be disturbing.

Perhaps the Minister was suggesting that a stabilisation fund will be created with clearly defined and acceptable criteria which will spell out the circumstances when withdrawal should take place. It is always a question about how information is communicated.

The argument which states that changing the structure of the HSF suggests it was not thought out well at the start, is a misunderstanding of history. The Peterson Institute for International Economics argued that it is unrealistic to think that, once established, a fund’s structure should be immutable to political forces or changing circumstances. This is an invitation either to illegal activity or to overturning the structure completely.

If there are concerns about changes, attention must be paid to the size of the fund that is established for intertemporal transfers.

If larger than the present floor set in the existing legislation of US$1 billion, beyond which no drawings can be made for stabilisation purposes, then this will represent an improvement.

Perhaps the real question is what are the benefits that are expected to accrue to this country from creating two separate funds as against what pertains now - one fund, two primary objectives? There is no sound financial or economic reason to justify the decision that appears to be contemplated. What is the real reason for the change? In this regard the changes needed that appear far more relevant are all for political economy issues.

Firstly, the principle of contributing to the fund, needs to be changed and discussed by the country. Secondly, creating two secretariats to manage the fund raises questions of cost containment.

Thirdly, if we were to investigate the operations of the present HSF, what are its weaknesses? Is the Board of the HSF a prisoner of the Central Bank of Trinidad and Tobago (CBTT), wholly dependent on the bank for operational issues that treat with management and investment of the fund? Fourthly, what about the assessment of the HSF conducted by the Peterson Institute for International Economics (PIIE)? The PIIE assessed 54 funds from 37 countries using four categories: structure of the fund; governance of the fund; accountability and transparency of the fund and finally, behaviour of the fund in managing its portfolio.

The Trinidad and Tobago HSF scored very well on the first - 100 for structure - but earned a score of 0 on behavior off the und in managing its portfolio, with mediocre scores for governance and accountability and transparency.

Overall 21 SWFs scored higher than the HSF. How does the present changes to the HSF address the weaknesses identified in the assessment by PIIE? The government appear to be adopting solutions that are costly or in somebody’s interest, but is it in the country’s?