IMF to seek guidelines for sovereign funds

The International Monetary Fund said Tuesday it was stepping up efforts to develop standards for sovereign wealth funds, forecasting they could swell to $10 trillion in five years.

 

The rising clout of SWFs, or state-owned investment vehicles, in the international monetary and financial system has raised questions about their political motives.

 

Noting the explosive growth in SWFs over the past 10 to 15 years, the IMF forecast their combined global worth would rise to about six to $10 trillion within five years, from $2-$3 trillion at present.

 

"The main impetus for the growth of SWFs comes from high oil prices, financial globalisation, and continued imbalances in the global financial system that have resulted in the rapid accumulation of foreign assets by some countries," said the 185-nation institution.

 

The IMF, which has a mission of promoting global financial stability, said it was making progress in establishing best practices for the controversial funds and had "stepped up" its work across a broad range of related issues.
 

"We've been engaged in an initial dialogue with sovereign wealth funds to help identify their current practices on issues such as governance and accountability structures, with a view to helping reach a consensus on best practices," said Adnan Mazarei, of the IMF's policy development and review department.

 

At the October annual meeting, representatives of the 185 member nations will be asked to formally approve the development of a best practices code for managing SWFs.

 

"The aim is to present a draft to its executive board by the IMF's annual meetings in October," the article said. The IMF noted that the countries with the world's five largest SWFs are in the United Arab Emirates, Norway, Saudi Arabia, Kuwait and Russia.
 

The spectacular growth in SWFs and a wave of investments, particularly after the global credit crunch that emerged in August, has spurred heightened attention from markets, policymakers, national legislatures and the media.

 

The IMF cited in particular recent capital injections totaling more than 40 billion dollars since November 2007 into European and US banks that suffered big losses from the subprime, or high-risk, mortgage crisis that stems from a US real-estate slump.

 

The IMF said these funds have had positive impacts despite criticism from some quarters. "These capital injections have been welcomed by the IMF and others because they have helped to stabilize markets," the IMF statement said.
 

"From the viewpoint of international financial markets, SWFs can facilitate a more efficient allocation of revenues from commodity surpluses across countries and enhance market liquidity, including at times of global financial stress," said IMF first deputy managing director John Lipsky. (AFP)