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Lao Hamutuk - Charles Scheiner
In the five years since it was unanimously enacted by the National Parliament, Timor-Leste's Petroleum Fund Law has served the nation well.
We have accumulated more than $6.6 billion dollars in the fund, which has provided a model for other oil-export-dependent countries of responsible and safe revenue management. Our conservative investment strategy made Timor-Leste's Petroleum Fund the only Sovereign Wealth Fund in the world not to lose money during the 2008 global financial crisis, even though the return on investment has been less than many had hoped. The Law's guideline of spending no more than 3% of the nation's total petroleum wealth in single year has encouraged discussion of long-term fiscal sustainability (even though the Government overspent the rule in 2009 and 2010). The prohibition of the use of the Fund as collateral for loans has helped to encourage fiscal responsibility, as a counterweight to pressures to spend large amounts of money quickly.
Timor-Leste's Petroleum Fund pays for 95% of state activities, including provision for many people's basic needs. Without oil and gas revenue our state would be bankrupt and our people would be hungry. Poverty will increase, and we will not be able to use our non-renewable petroleum birthright to build our non-oil economy.
Imminent revisions to the Petroleum Fund law endanger the security it has provided since 2005. Risky investments could lead us down Nauru's path from wealth to poverty. Spending beyond sustainable levels will impoverish our grandchildren, especially in light of our growing population and high rate of inflation. Using the Fund to guarantee loans would force future generations to pay for today's profligacy, even after Timor-Leste's oil and gas reserves are used up.
Since last year, the Ministry of Finance has been preparing to revise the Petroleum Fund law, hiring consultants, drafting papers, and holding private and public meetings. The pace has increased during the last two months, and the Council of Ministers is discussing proposed revisions, with the goal of passing them through Parliament by the end of 2010. La'o Hamutuk believes it is important for this information to be widely available, so that every citizen has the opportunity to give informed input to decisions that will impact their lives for the indefinite future.
In early September, the Fund's Investment Advisory Board released a Statement of Investment Beliefs and Principles which encourages diversification into equities (stocks) as well as bonds, using external managers.
On 29 September, the Council of Ministers received a presentation on the possibilities of expanding current investments (90% in government bonds, up to 10% in traded stocks) to include more stocks, as well as real estate, infrastructure, and other instruments. Given the attempt to scam the Fund of a billion dollars last year, La'o Hamutuk feels that caution is required. Although everyone wants the Fund's investments to earn the highest possible return (especially since returns to date have been lower than inflation in Timor-Leste), wishing doesn't make it so. Risking the Fund's principal in the hopes of high profits will endanger the future of our children, and a state which faces the voters every five years may not be able to carry out a long-term investment strategy, with gains and losses to the invested principal.
On 13 October, the Council of Ministers discussed changes regarding the investment policy and risk profile, transfer/withdrawal rules, the use of the Petroleum Fund as collateral for loans, Operational Management and the composition of the Investment Advisory Board.
Five days later, the Ministry of Finance announced the appointment of Schroders Investment Management Ltd. to manage $260 million of the Petroleum Fund, which they will invest in stocks. The Minister explained that, although this is the first investment of the Petroleum Fund in equities, the flexibility of the current Petroleum Fund Law has been exhausted. Therefore, the Council of Ministers is discussing increasing the 10% currently allowed in listed equities, and also allowing up to 5% of the Fund to be invested in private equities, real estate and infrastructure.
Although the Ministry of Finance has not yet distributed a draft of the proposed revisions to the law, they have invited people to a "Mini-seminar on Fund Management and Changes to Petroleum Fund Law" in the Ministry's Knowledge Center conference room from 9:00-12:30 on Saturday 23 October.
La'o Hamutuk hopes that this seminar will be the initial phase of a serious discussion of the pros and cons of these changes, with concrete information about the Government's proposals, and two-way dialogue about their benefits, drawbacks, implications and risks.
Information on the Petroleum Fund
English/Tetum: http://www.laohamutuk.org/Oil/PetFund/05PFIndex.htm
Information on revising the Petroleum Fund Law
English: http://www.laohamutuk.org/Oil/PetFund/revision/10PFRevision.htm
Tetum: http://www.laohamutuk.org/Oil/PetFund/revision/10PFRevisionTe.htm
Information on borrowing
English: http://www.laohamutuk.org/econ/debt/09Borrowing.htm
Tetum: http://www.laohamutuk.org/econ/debt/09BorrowingTe.htm
Information on the 2011 State Budget and basic economic situation:
English: http://www.laohamutuk.org/econ/OGE11/10OJE2011.htm
Tetum: http://www.laohamutuk.org/econ/OGE11/10OJE2011Te.htm
La'o Hamutuk (The Timor-Leste Institute for Development Monitoring and Analysis)
P.O. Box 340, Dili, Timor-Leste (East Timor)
Telephone: +670-3325013 or +670-734-0965 mobile
email: peacefulsystems@gmail.com website: http://www.laohamutuk.org skype: cscheiner
Lao Hamutuk - Charles Scheiner
In the five years since it was unanimously enacted by the National Parliament, Timor-Leste's Petroleum Fund Law has served the nation well.
We have accumulated more than $6.6 billion dollars in the fund, which has provided a model for other oil-export-dependent countries of responsible and safe revenue management. Our conservative investment strategy made Timor-Leste's Petroleum Fund the only Sovereign Wealth Fund in the world not to lose money during the 2008 global financial crisis, even though the return on investment has been less than many had hoped. The Law's guideline of spending no more than 3% of the nation's total petroleum wealth in single year has encouraged discussion of long-term fiscal sustainability (even though the Government overspent the rule in 2009 and 2010). The prohibition of the use of the Fund as collateral for loans has helped to encourage fiscal responsibility, as a counterweight to pressures to spend large amounts of money quickly.
Timor-Leste's Petroleum Fund pays for 95% of state activities, including provision for many people's basic needs. Without oil and gas revenue our state would be bankrupt and our people would be hungry. Poverty will increase, and we will not be able to use our non-renewable petroleum birthright to build our non-oil economy.
Imminent revisions to the Petroleum Fund law endanger the security it has provided since 2005. Risky investments could lead us down Nauru's path from wealth to poverty. Spending beyond sustainable levels will impoverish our grandchildren, especially in light of our growing population and high rate of inflation. Using the Fund to guarantee loans would force future generations to pay for today's profligacy, even after Timor-Leste's oil and gas reserves are used up.
Since last year, the Ministry of Finance has been preparing to revise the Petroleum Fund law, hiring consultants, drafting papers, and holding private and public meetings. The pace has increased during the last two months, and the Council of Ministers is discussing proposed revisions, with the goal of passing them through Parliament by the end of 2010. La'o Hamutuk believes it is important for this information to be widely available, so that every citizen has the opportunity to give informed input to decisions that will impact their lives for the indefinite future.
In early September, the Fund's Investment Advisory Board released a Statement of Investment Beliefs and Principles which encourages diversification into equities (stocks) as well as bonds, using external managers.
On 29 September, the Council of Ministers received a presentation on the possibilities of expanding current investments (90% in government bonds, up to 10% in traded stocks) to include more stocks, as well as real estate, infrastructure, and other instruments. Given the attempt to scam the Fund of a billion dollars last year, La'o Hamutuk feels that caution is required. Although everyone wants the Fund's investments to earn the highest possible return (especially since returns to date have been lower than inflation in Timor-Leste), wishing doesn't make it so. Risking the Fund's principal in the hopes of high profits will endanger the future of our children, and a state which faces the voters every five years may not be able to carry out a long-term investment strategy, with gains and losses to the invested principal.
On 13 October, the Council of Ministers discussed changes regarding the investment policy and risk profile, transfer/withdrawal rules, the use of the Petroleum Fund as collateral for loans, Operational Management and the composition of the Investment Advisory Board.
Five days later, the Ministry of Finance announced the appointment of Schroders Investment Management Ltd. to manage $260 million of the Petroleum Fund, which they will invest in stocks. The Minister explained that, although this is the first investment of the Petroleum Fund in equities, the flexibility of the current Petroleum Fund Law has been exhausted. Therefore, the Council of Ministers is discussing increasing the 10% currently allowed in listed equities, and also allowing up to 5% of the Fund to be invested in private equities, real estate and infrastructure.
Although the Ministry of Finance has not yet distributed a draft of the proposed revisions to the law, they have invited people to a "Mini-seminar on Fund Management and Changes to Petroleum Fund Law" in the Ministry's Knowledge Center conference room from 9:00-12:30 on Saturday 23 October.
La'o Hamutuk hopes that this seminar will be the initial phase of a serious discussion of the pros and cons of these changes, with concrete information about the Government's proposals, and two-way dialogue about their benefits, drawbacks, implications and risks.
Information on the Petroleum Fund
English/Tetum: http://www.laohamutuk.org/Oil/PetFund/05PFIndex.htm
Information on revising the Petroleum Fund Law
English: http://www.laohamutuk.org/Oil/PetFund/revision/10PFRevision.htm
Tetum: http://www.laohamutuk.org/Oil/PetFund/revision/10PFRevisionTe.htm
Information on borrowing
English: http://www.laohamutuk.org/econ/debt/09Borrowing.htm
Tetum: http://www.laohamutuk.org/econ/debt/09BorrowingTe.htm
Information on the 2011 State Budget and basic economic situation:
English: http://www.laohamutuk.org/econ/OGE11/10OJE2011.htm
Tetum: http://www.laohamutuk.org/econ/OGE11/10OJE2011Te.htm
La'o Hamutuk (The Timor-Leste Institute for Development Monitoring and Analysis)
P.O. Box 340, Dili, Timor-Leste (East Timor)
Telephone: +670-3325013 or +670-734-0965 mobile
email: peacefulsystems@gmail.com website: http://www.laohamutuk.org skype: cscheiner
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