Lodamun

[imperialpearl]

Although an enduring case for it had been made under previous administrations, especially amidst the otherwise unpredictable fluctuations of the global and national economy, the concept of a “rainy day” fund/budget stabilisation fund for the Lodamese states had not gained much momentum since it was initially proposed in a memo from the Treasury Department decades prior. Yet, with its eye ever trained on ringfencing the nation from external risk, the Stedman Administration is seemingly eager to matter and push it beyond the point where previous administrations had fallen short: implementation. On the sidelines of the recent Lodamese Governor’s Conference, the annual meeting between the President and the Governors of the Lodamese States and Territories, Secretary of the Treasury Dr Peter Freeman held a series of conversations with various State and Territorial Treasurers wherein he sought to gauge both their appetite for continued fiscal reforms as well as a commitment to see the implementation of such a scheme to its completion.

The proposal, as argued by its creator former Secretary of the Treasury Dr Capria Bowman, had been conceptualised in the latter half of the banking crisis which ultimately spawned the creation of the Credit Reconstruction Corporation (CRC) and new rules to govern the conduct of the nation’s financial institutions. Bowman, as the former President of the CRC, believed that the exposure to which the nation’s state and territorial government had opened themselves up was an extremely “uncomforting” risk, especially amidst the potential for a similar if not worse crisis to befall the nation once more. The memo noted that in the event of a national or even global recession, state governments may be forced to make difficult decisions in relation to spending priorities owing to budgetary shortfalls. It adds that although austerity/budget cuts may be the “go-to” option for addressing such shortcomings, it need not be the case, given the various fiscal tools available to state and local authorities. Treasury Department officials familiar with the Secretary’s initial intentions going into the conversations noted that although he [the Secretary] was eager to see the proposal introduced throughout the states and territories by executive order, he ultimately understood that such a measure could not be forced onto the states but would instead require significant buy-in whereafter the states/territories could be locked into compliance.

At a press conference held alongside the Chairman of the Federal Reserve Bank Dr Eric Todd, Secretary Freeman provided a brief synopsis of his discussions with his stately counterparts alongside providing greater clarity on how such a scheme would ultimately play out. He noted that in proposing the idea, the Governor of the Native Territories Nakai Smith was the first to voice his approval of the proposal. Historically, the Native Territories have had to enact crippling austerity measures to address budgetary shortfalls in times of economic uncertainty, owing to the territory’s already depressed economic fortunes. Secretary Freeman also confirmed that the Governors of Millford, Berkwaki and Newchester had also expressed interest in the proposal owing to the volatility of their respective state economies, especially in the case of Berkwaki which is now wholly dependent on fortunes from its downstream petrochemicals sector. However, the Governor of St. Christopher Evelyn Murray objected to the idea, noting that her administration had already initiated advanced discussions on a similar proposal.

FRB Chairman Todd stated that the states/territories would likely take on technical assistance from the FRB as its rules will govern how these rainy-day funds will be structured for compliance. He explained that similar to any rainy-day fund, capital accumulating would likely come from surplus revenue, however, he noted that it was possible for capital accumulation to occur via an initial windfall tax (and the revenue generated therein), followed by surplus revenue. A major underpinning of the principle guiding this theory is that in times of positive growth, it would be local for the funds to gain revenue and in times of uncertainty/irregular growth, the fund will either provide “drawdowns” or will halt revenue accumulation. Beyond this, Secretary Freeman noted that special consideration had to be made to ensure that the funds were not to take on the form of a structural fiscal balance fund. “I can make an informed guess that Governor Murray’s non-participation stems from the fact that St. Christopher’s proposed “State Economic Fund”, will likely take on the shape of a structural fiscal balance fund, which will primarily address issues not related to the state of the economy.”

Secretary Freeman noted that the federal government was not interested in advancing such a structure as these funds ultimately tend to lose focus, especially when they have to balance between a structural fiscal balance fund as well as a cyclical fiscal balance fund. “Obviously by virtue of its structure, St. Christopher’s fund would have to be governed under a separate regime, one which I imagine will be more stringent than what we’ve proposed here,” He explained. Freeman maintained that it was important for the states and territories to begin enacting policies aimed at reducing their exposure to external shocks, particularly recessions, which he noted may increase in frequency and intensity as time goes by. He explained that the states may find themselves in situations where they may not be able to count on the federal government to rescue them from economic uncertainty via financial aid/budgetary support. “By establishing these funds and keeping to the prudence as will be established in the rules governing these funds, the state and territories make the first step towards becoming truly independent of the federal government. President Stedman has made it extremely clear that his administration is committed to empowering the states and it is our belief that sound decisions like this make that possible.” Freeman concluded.