The objective of the sovereign wealth fund, however, is not to be a stagnant financial reserve. Norway, the country with the largest sovereign wealth fund in the world, has avoided the “resource curse” by not spending its oil revenues. However, Jens Stoltenberg… states, “The problem in Europe with the deficits and the debt crisis is that many European countries have spent money they don’t have. The problem in Norway is that we don’t spend money we do have.” (http:www.theguardian,com/business/2013/sep30/Norway-oil-sovereign-wealthfund).

On the one hand, over-estimated withdrawals beyond institutional capacity to complete projects could open avenues to waste and corruption on misdirected large-scale projects as in the case of the Malampaya fund during the Arroyo administration, or treating the fund as an extra-congressional purse as in Aquino’s treatment of the fund. On the other hand, a completely “off limits” fund reserved for only large infrastructure spending would hinder the opportunity for immediate attention to human capital development, social services, infrastructure and environmental rehabilitation in more immediate smaller scale projects or providing emergency aid in the case of natural disaster. Thus, a balance must be achieved between short-term and long-term spending of the fund.

To achieve such a balance, several factors must be considered. Spending strategies should be based on a system that regulates the amount to be spent on an annual basis. Timor-Leste’s Petroleum fund, modeled after that of Norway, bases the amount for withdrawals and transfers on its ESI, or estimated sustainable income. The ESI is “the annuity value of government wealth in general and expected future petroleum revenue in particular” ( and provides a foundation for predictable spending.

In addition to a multi-stakeholders’ board and congressional scrutiny as part of the regulators of the fund, new institutions within the national government should be created specifically for deciding what short-term and long-term projects are to be pursued and if spending beyond the ESI would be plausible. Such institutions could be responsible for determining the rate of return to justify withdrawing from the fund for various projects. Priority of the decision-making process should be fiscal sustainability of the projects as well as the absorptive capacity of the country to implement and benefit from these projects.

To ensure fiscal responsibility in developing sound government since its independence in 2005, Timor-Leste has established various institutions responsible for “project appraisal, procurement, and monitoring against budget.” (Ibid.). These institutions include the Infrastructure Fund, a separate fund independent of the Petroleum Fund (PF), that serves multi-year projects, a review conducted by the Ministry of Finance’s Secretariat, and two boards that finalize projects according to the financial scope of the project.

Although withdrawals from the PF have gone beyond the ESI since 2009, justification to do so comes from the multi-layered decision making process of said institutions and must go through approval by the Parliament. However, it has been argued that spending beyond the ESI is due to the uncertainty of long-term oil prices, which maybe higher than projected at the start of the year, and high short-term returns on public investment—factors that go into determining the ESI (;ications/7387=timor=leste-petroleum-fund).

The law should support withdrawing within the ESI and make withdrawals beyond it difficult, since, according to the Overseas Development Institute, “constraints on implementation might suggest an incentive formula in the budget that ensures funding is tailored to the ability of ministries to execute their budget efficiently to achieve effective outcomes. It also calls for rigorous evaluation of expenditures and institutional arrangements which ensure that only projects with high expected returns are selected (Ibid).

The fund should be included in the national government’s budgeting process, involving both the executive and legislative branches. Such institutions and policies surrounding spending of the Petroleum fund have allowed it to grow effectively through sound management while still funding the national budget and other infrastructure-building projects.

The national government could consider borrowing to fund certain short-term projects and use the revenue to fund long-term infrastructure building projects –a method of spending that Timor-Leste has found affective. Borrowing funds for certain short-term projects has forced authorities to remain accountable in spending due to the pressure of accruing debt (Ibid).

Given the history of misspending the Malampaya fund and the web of conflicting laws surrounding it, the issue at hand is not only regulating the release of funds. It is also releasing funds within a system that takes into account high return rate for spending, including factors such as the ability of institutions to properly implement projects and the absorptive capacity of communities to benefit from them. A rigorous evaluation and budgeting process should be put into practice to maintain fiscal sustainability.

The sovereign wealth fund has the potential to address the issues of expenditure monitoring, meaningful investment, and long-term growth. Similar to Timor-Leste’s Petroleum Fund, the growth and monitored spending would contribute to the development of a large financial reserve, which can then be utilized for human capital development, social services, infrastructure and environmental rehabilitation to bolster long-term economic growth.

Bernadette Patino, a recent graduate of Indiana University, is a fellow researcher of Bantay Kita.