US, Singapore eyed for our sovereign wealth funds

THE US and Singapore are being considered to host PNG government-proposed sovereign wealth fund (SWF) in US dollar.
Anthony Yauieb, deputy secretary for the Treasury Department who is the chairman for the department/Bank of PNG SWF working group, said: “With respect to currency denomination of a SWF, world commodity markets are US dollar-denominated and the liquefied natural gas-related tax revenues, dividends and other proceeds will be accounted for in the US dollar.
“In light of this, it would be practical for SWF investments, operations and accounting to be denominated in US dollar.
“Such an approach is consistent with existing practice of overseas incorporated entities,” Yauieb said, adding one such case was the PNG Sustainable Development Program (PNGSDP).
He said this yesterday in Port Moresby during the domestic stakeholders’ workshop on the possible establishment of a SWF for PNG.
In his presentation on behalf of the working group, Yauieb said an offshore SWF was appropriate for PNG drawing on international best practices and past experiences.
He said it was appropriate when the LNG revenues were expected to be much higher than the flow of funds at the height of both the recent and past commodity price booms.
Yauieb said the working group was conscious of PNG’s development needs and the desirability of using the LNG revenues in a manner that promoted macroeconomic stability while underpinning PNG’s long term development strategy and socio-economic objectives.
The working group considered offshore SWF than onshore largely due to PNG’s past experiences and recent use of trust accounts and with the previous operation of mineral resources stabilisation fund (MRSF) from 1974 to 2001.
“A key limitation of MRSF was that its funds were invested onshore rather than offshore …  there was a high opportunity cost associated with this approach  – through low domestic interest earned and limited scope of growing the value of the fund in a small financial market.”
Yauieb said limitations of domestic trust account relate to “inefficient management arrangements, lack of flexibility and poor transparency, accountability and governance arrangements”.