17 July 2008
On July 9-10, 2008, the International Monetarty Funds’s (IMF) Working Group on Sovereign Wealth Funds (SWFs) held a two-day meeting in Singapore to address concerns around SWFs and consider possible guidelines.
Sovereign Wealth Funds (SWFs) have become increasingly important in global financial markets, operating an estimated $3 trillion in assets. In particular, soaring oil prices and a growing preference for natural resource funds have provided resource-rich countries, many from the developing world, with ready amounts of capital to invest abroad. In nations like Kazakhstan and Azerbaijan, national oil funds receive considerable attention. According to the International Monetary Fund (IMF), these funds contribute to stability in global financial systems, as they are able to endure market cycles and take distinct risks. They also interlink developed and developing economies.
In light of these trends, the IMF organized the International Working Group (IWG) of Sovereign Wealth Funds on May 1, 2008. Western concerns about transparency and politically motivated investments have led the group to begin drafting SWF guidelines. The voluntary guidelines, known as Generally Accepted Principles and Practices (GAPP), will likely address institutional, operational, and governance issues, as well as disclosure of holdings. Other international and regional organizations, such as the Organization for Economic Co-operation and Development (OECD) and the European Commission, are considering similar guidelines or regulations for countries receiving SWF investments. On the other hand, the guidelines have been criticized as potentially over-burdensome and as a western attempt to curb global finance shifts now in favor of emerging economies. Others see the code as unnecessary, pointing to better practices in SWFs than in many private firms.
At the conclusion of the meeting, the working group claimed to be halfway through drafting guidelines. The IWG plans to meet again in Santiago, Chile, on September 1-2 and draft the final principles by October, in time for the IMF/World Bank Annual Meetings.
The issues raised by the IWG build on broader transparency trends. The Extractive Industries Transparency Initiative (EITI), for example, covers revenues received by governments from oil, gas, and mining projects. However, civil society actors in Europe and Central Asia have long been concerned with transparency and popular participation in the subsequent use of these revenues once they reach government hands. Although natural resource funds have been quite transparent in some countries, others require greater transparency, accountability, and access to information for citizens. Guidelines for SWFs could have a positive impact on these issues, particularly if the IMF’s working group considers not only western governments’ economic and political concerns but also civil society concerns and the interests of citizens in countries with sovereign wealth funds.
The IWG member countries are Australia, Azerbaijan, Bahrain, Botswana, Canada, Chile, China, Equatorial Guinea, Iran, Ireland, Korea, Kuwait, Libya, Mexico, New Zealand, Norway, Qatar, Russia, Singapore, Timor-Leste, Trinidad & Tobago, United Arab Emirates, and United States. Observers are Saudi Arabia, Vietnam, the OECD, and the World Bank. It is co-chaired by Hamad al Suwaidi, Under Secretary of Finance of Abu Dhabi and a director of the Abu Dhabi Investment Authority (ADIA), and Jaime Caruana, director of the Monetary and Capital Markets Department at the IMF.
Sources
IWG-SWF Press Release (IMF-SWF website)
Wealth funds meet in Singapore to allay Western fears, by Kevin Lim, Reuters, July 8, 2008 (Reuters website)
- Sovereign funds debate disclosure rules, by Louise Armitstead, The Sunday Telegraph, July 13, 2008 (Factiva/Sunday Telegraph)
- No demonisation of, or naivety towards, sovereign wealth funds, Agence Europe, July 11, 2008 (Factiva/Agence Europe)
- Progress made on sovereign funds guidelines, by Grace Ng, Straits Times, July 11, 2008 (Factiva/Straits Times)
- The Myth Of Transparency; Both Enron and Parmalat disclosed massive amounts of data as required but were still able to deceive the public, by Zachary Karabell, Newsweek International, July 14, 2008 (Factiva/Newsweek International)
Resources
International Working Group of Sovereign Wealth Funds (IWG-SWF website)
Kazakhstan Budget Transparency and Public Accountability Program (BTPA/Soros-Kazakhstan website)