Brussels, 03/04/2008 (Agence Europe) - Responding to an invitation from the Crans Montana Forum, politicians, diplomats, managers of sovereign wealth funds, bankers and entrepreneurs discussed the rise of sovereign wealth funds (SWFs) in the world economy on Wednesday 2 April 2008 - inevitably considering the utility of managing SWFs to shed light on their activity and aims while ensuring suitable conditions for encouraging investment.
The arrival on the international markets of SWFs seems to have taken everyone by surprise but they should have been foreseen with the financial excesses generated by the explosion of currency reserves in some countries outside the EU, said Jean-Paul Carteron, founder and president of the the Crans Montana Forum. Karel de Gucht, Belgium's foreign minister, said the SWFs brought both opportunities and challenges. Recipient countries needed to be reassured without going as far as protectionism. He said it was urgent to establish a multilateral framework based on openness, predictability and responsibility. EU Economic and Monetary Affairs Commissioner Joaquin Almunia recalled the 5-arm approach endorsed by the 2008 Spring European Council (opening of the European market and reciprocity from investing countries, the use of existing instruments in the EU, proportionality and transparency, see EUROPE 9623, 9611). He said the European economy had been built on the principles of open markets and foreign investment, adding that the EU urged the SWFs to pledge to good governance, be suitably accountable and reach a high enough level of transparency. The commissioner said that the rise of SWFs reflected huge, persistent, imbalances on the international stage - abysmal deficits in US current accounts, the gap between saving and investment in Asia and oil-exporting countries and the weakness of the Chinese currency, the yuan. He welcomed the upcoming creation of a working group at the IMF to write an international code of practice for SWFs.
Terence Brown, Director of the European Investment Bank, said the investment made by sovereign wealth funds in geographical areas and businesses that needed it was positive. Without it, the SWF countries would have been exposed to the Dutch disease - a term coined in the 1970s when the gas industry in the Netherlands helped it accumulate currency and investment, but this resulted in rising inflation, an increase in the value of the currency and loss of competitiveness in other businesses. Brown said that rules were needed, like in all games. He said the European Council's approach was not so different from the way other companies are approached. He added that one had to understand the sums involved, the people managing the money and the objectives being pursued. He summed up by saying that people had got more relaxed but the right measures had to be taken in order to stay relaxed. Etienne de Lhoneux, secretary general of the Bank of Luxembourg, called for the launch of regulatory initiatives, the creation of golden shares for companies which SWFs invest in, and protection of services of general interest. He welcomed a strengthening of cooperation among SWFs and central banks through cooperation mechanisms, exchange of information, consultation and even co-decision. In the view of Mar Gudmundsson of the International Settlement Bank, SWFs do not jeopardise financial stability. Not seeing the need for prudential regulation, he did recognise that greater openness from SWFs would counterbalance protectionist feelings in recipient countries.
On behalf of the Norwegian finance ministry, Thomas Ekeli described the Norwegian sovereign wealth fund made up of oil income and often seen as a model SWF. He said that openness was key for the Norwegians, covering the governance of the fund (who owns it and who makes decisions), the objectives pursued and the implementation of investment. Fully incorporated in the state budget, the Norwegian wealth fund only invests abroad rather than being used to develop infrastructure in Norway. It aims to maximise financial returns through non-strategic investment in the capital of selected companies and ethical criteria. In 2007, the fund managed US$ 400 billion and is expecting this to double in five years.
Abdulmajeed Alshatti, the president of the Commercial Bank of Kuwait, said that it was SWFs that had helped Kuwait survive the invasion by Iraq in 1990. Kuwaiti SWFs invest in the global economy to replace non-renewable resources with renewable resources, he explained, buying 20% of British Petroleum, for example, and recently buying a stake in Citibank, the biggest bank in the United States, recently hit by the financial crisis. Alshatti said it would be wrong to think that SWFs have political motives. Instead, they were beneficial to recipient countries and bore a share of the risk on the financial markets, he said. Market forces should be left to decide, he said, adding that there was no need for regulations. Karim L. Karjan, Lebanese mining entrepreneur, warned against politicising the rise of SWFs. He pointed out that the regulations people were trying to impose on SWFs had not been imposed on pension funds, alluding to the freedom enjoyed by the Blackstone fund in the US. We should not throttle something that is positive for everyone, he added. (M.B.)