Lessons from Manila

Ashby Monk

I’ve now had some time to reflect on my whirlwind trip to the Asian Development Bank and the Philippines. I was there to participate in a Knowledge Sharing Platform on Resource Revenue Management, and, I’m happy to report, a considerable amount of knowledge was indeed shared.  I left Manila with 20+ pages of notes. It was well worth the trip.

Don’t worry, I’m not planning on posting all 20 pages of notes here. However, I will share one interesting take-away from the event: On the one hand, there was a sincere interest among many of the governments present (who don’t currently have SWFs) to use SWFs to manage their looming resource revenue booms. On the other hand, many outsiders expressed a healthy skepticism about government’s ability (in general) to withstand the temptation to spend assets for short-term political benefit rather than investing for the long-term benefit of the country. The non-governmental folks were also concerned about good and well-intentioned governments today setting up SWFs only for corrupt future governments to mismanage and misuse them.

What I found interesting about this whole debate was the fact that it’s the very same debate that took place in the developed world before the creation of pension reserve funds. If you go back and look at the CPPIB, the Future Fund, the NZSF and even the Irish NPRF, all grappled with the prospect that today’s commitment mechanism for managing an intractable problem (i.e., unfunded liabilities) would become tomorrow’s slush fund for unsavory politicians.

The Canadians were so paranoid about this that the founding legislation made it more difficult to change the mandate of the CPPIB than the Canadian constitution. Seriously. Also, the Future Fund and the NZSF don’t have boards of trustees…they have boards of guardians. The idea was that being appointed a “guardian” meant that you stood guard over the assets to protect them against short-term political interests.

In the end, however, no current government can completely prevent future governments from using the assets in the fund, as we saw recently in Ireland. The real trick is to make the process of tapping these assets difficult (via design and governance) and politically costly, or at least unsavory (i.e., taking money from pensioners and giving it to bankers).

Anyway, thanks to the ADB for a great event and for including me.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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