Managing Assets to keep Body and Spirit Strong

Posted May 26, 2011 kmcgovern

Managing Assets to keep Body and Spirit Strong was delivered to the EAROPH Congress in Adelaide, South Australia in November 2010.

Some capital investments result in the improved well-being of a nation’s peoples. Some result in both the body and the spirit, individually and collectively, being weakened. The absence of capital investments, individually and collectively, results in either richness or poverty. Examples abound in Australia and in other countries in the Asia / Pacific region where capital investments in public assets have both undermined development and been instrumental in measurable and popularly acclaimed development.

The poor results are not intentional, although the problems of non-systemic management of public sector assets have been identified and discussed for at least half a century. A perusal of ancient Roman and Chinese literature will probably reveal similar problems in each civilisation. In 1999 AusAID drew attention to asset maintenance and the impact of under-financing of recurrent costs on the services available to developing country peoples using donor funded assets (AusAID 1999). At the turn of the century many agencies were identifying ways to strategically manage road stock, for example in 2001, the OECD’s expert group on asset management published its report on Asset Management for the Road Sector (See: http://bit.ly/ihHLow) and in 2002 the Worldbank held a seminar on road asset management (See: http://bit.ly/iqsugm).

Prior to that, in the 1980s, New Zealand began to implement financial management reforms partly to make transparent the cost of decisions to defer maintenance of the public sector asset stock. By identifying  and then finding the depreciation of each agency’s asset stock, the New Zealand Treasury was able to estimate the costs to be incurred if the value of the stock was to  be maintained.

By separating decisions affecting the cost of ownership of assets and their operation, the Treasury ensured that decisions to increase or decrease the size of public sector entities were transparent and not made by default. At the same time, New Zealand passed its Resources Management Act to ensure that its natural estate, and not only its built asset stock, was maintained. Governments’ Treasuries give  high priority to their financial assets as they fund annual expenditure, permanent expenditure (Pensions, judges salaries etc) and the scheduled annual capital expenditure.

The IMF and Banks, including multilateral institutions track cash flows. Public sector unions, suppliers, analysts, the media as well as beneficiaries have a stake in a nation’s financial assets. The credit ratings of nations set the upper limit to rates available to their private sector borrowers. Sovereign Wealth Funds may be used  to protect a developing nation from high fiscal volatility (IMF Working Paper 07/297) though the success of this strategy is not guaranteed.

 

For more: See the full paper in the following link: Managing Assets to keep Body and Spirit Strong.

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