Papua New Guinea and Timor Leste have both released more
details of the sovereign wealth funds (SWFs) that they hope
will underpin future prosperity.
Papua New Guinea plans to launch a new fund based on sales
of liquefied natural gas (LNG), while Timor-Lestes
fledgling fund is set to make a major shift in its investment
Timor-Lestes Petroleum Fund was launched on the back
of oil and gas revenue that began accruing in 2006 and brings
in about $2 billion per year. The fund has $7.7 billion under
management 90% is invested in US Treasuries or similar
instruments, and 10% in equities managed by Schroder Investment
Emilia Pires, Timor-Lestes Minister of Finance,
yesterday told Emerging Markets that she has
recommended changing the allocation to 50% global equities and
50% bonds. The 50% bonds will not just be US
Treasuries, she added. It is diversification we are
after: increasing the risk, but also diversifying to
counterbalance that risk.
Andrew Oaeke of the Department of the Treasury of Papua New
Guinea outlined plans to launch a SWF with revenues from the
countrys transformational PNG-LNG liquefied natural gas
project, which is expected to start generating income from 2018
and earn around US$30 billion over its lifetime.
The government and central bank have set up a structure for
a consolidated pool of three offshore funds: one for
infrastructure, one for economic stabilization, and one future
Drawdown rules will be governed by legislation, which has
yet to go to parliament, and an investment board will oversee
allocation, including with external fund managers.
Both countries are dealing with the challenges as well as
the bounty that natural resources can bring to small nations.
Oaeke said: It is likely that the scale of LNG as a [...]
revenue resource will give rise to major macro pressures, such
as the appreciation of the exchange rate, potentially
undermining the competitiveness of our export sector.
The pressure on agriculture, which accounts for 80% of the
Papua New Guinea economy, will be considerable.
In Timor-Leste, an acute challenge is to balance the need to
improve the country today, and to save for the future after the
oil and gas fields run out in about 20 years time.
Pires said: There was major civil unrest in 2006,
[when] we were sitting on a growing bank account while many
ordinary people were in desperate need to be lifted out of
poverty. You do need a balance on this.
Since then Timor-Leste has taken funds out to develop
infrastructure. But the government must go to parliament for
withdrawals of more than about 3% of the fund in any year. The
fund is considered among the most transparent in the world.
Oaeke of Papua New Guinea said communication is vital.
It is important people understand how [assets] are going
to be used and why they will be kept abroad and not
The insistence on transparency is striking, given that some
of the largest SWFs, such as Kuwaits and Abu
Dhabis, disclose very little about holdings or
performance. Transparency is a good thing, Professor Simon
Chesterman of the National University of Singapore said.
It stops abuse; it is public money; and it leads to