O’Neill clears the air on wealth fund

 FINANCE and Treasury Minister Peter O’Neill has come out to clarify misunderstandings raised in media reports that the establishment of PNG’s sovereign wealth fund will be onshore rather than offshore.

O’Neill said this came about when he welcomed comments raised by Australia’s Future Fund chairman David Murray outlining the benefits of establishing sovereign institutions onshore and promoting transparency and openness. 

He said while the funds would be held offshore, the emphasis was for the establishment, ownership and control of the sovereign wealth fund to be onshore.

It was envisaged that the government would set up an independent board that would set the investment mandates and other rules for the sovereign wealth funds.

The board will be made up of individuals with relevant professional expertise and it will 

effectively control the guidelines/rules concerning the operations of the fund from PNG.

O’Neill explained that fund managers would undertake the actual investments of the funds held offshore in accordance with the guidelines/rules determined by the board.

 “It is very important for macroeconomic stability purposes that PNG’s sovereign wealth funds are held offshore.”

O’Neill said this was in order to reduce the expected sharp appreciation of the exchange rate (the so-called Dutch disease impact) which would have been detrimental impact on the agricultural exporters and tourism which support the rural communities as well as import competing industries.

He added that holding funds offshore was also important for the effective operation and cost of monetary policy so that liquidity in the system and inflation was controlled.

The government has set up a committee of departmental secretaries to be chaired by the treasury secretary to work through all the details associated with the operation of the sovereign wealth funds which will report back to government.

This committee will be assisted by international stakeholders and experts in these matters.

O’Neill said the operations, openness and transparency of the funds would be in accordance with international best practices as outlined in the Santiago Principles.

Funds will be brought onshore and spent through the budget in line with the absorptive capacity of the economy so that development opportunities can be maximised while maintaining macroeconomic stability.

He reiterated that the establishment, control and ownership of PNG’s sovereign wealth funds will all be onshore while the funds will be held offshore.

All these are consistent with the sovereign wealth fund model announced as part of the 2011 Budget.

More information can be obtained from the 

Treasury’s website, www.treasury.gov.pg.