No politics in wealth fund investments: US

 

The US Treasury Department on Thursday said it agreed with Abu Dhabi and Singapore on a set of principles for sovereign wealth funds that specifies politics should not influence their decisions.

 

The foreign-controlled funds, many based in the Middle East but also in Asia, Russia and China, have aroused US lawmakers' concern because they have poured billions of dollars into large stakes in Wall Street firms and other businesses and fanned fears the US was losing control of its destiny.

 

But Treasury Secretary Henry Paulson, in a statement after meeting government officials from Abu Dhabi and Singapore as well as some individual funds, said they were welcome in the United States and set out principles that also guide the behavior of countries that are getting the funds' money.

 

Paulson said the principles the Treasury made public should guide efforts by the International Monetary Fund and the Organization for Economic Cooperation and Development, which also are working on developing a set of "best practices" for the funds.

 

The first principle said funds should make investments "solely on commercial grounds, rather than to advance ... the geopolitical goals of the controlling government."

 

Countries that are getting the money "should not erect protectionist barriers" to foreign investment, according to another principle that reflects the Bush administration's determined bid to ward off restrictions on the funds, especially at a time when their money is badly needed.

 

At a briefing for reporters later, Treasury's assistant secretary for international affairs, Clay Lowery, said there was no attempt to single out the Abu Dhabi and Singapore wealth funds as specially desirable partners for an agreement.

 

"There's nothing exclusionary about what we're doing," Lowery said. "We're talking to other funds too."

 

But he noted the two funds were long-established and had well-respected track records as reliable investors.

 

The chairman of the Joint Economic Committee, New York Sen. Charles Schumer, endorsed the announcement of a set of principles and said he "saluted" Treasury for its effort.

 

"Transparency is what we are asking for from sovereign wealth funds.  Now it is up to other sovereign wealth funds to follow this lead," Schumer said.

 

Abu Dhabi last year bought a $7.5 billion (Dh27.5 billion) stake in Citigroup while Singapore's Temasek Holdings bought a $4.4 billion (Dh16.15 billion) stake in Merrill Lynch.

 

Paulson and Deputy Treasury Secretary Robert Kimmitt met with Abu Dhabi Executive Council Member Hamad Al Hurr Al Suwaidi and Singapore Finance Minister Tharman Shanmugaratnam as well as executives from sovereign funds ADIA and GIC.

 

The Treasury has been pressing since last autumn for the IMF to develop the "best practices" guide. The funds have become increasingly active in buying US assets with growing foreign exchange reserves from oil and international trade.

 

The IMF board meets on Friday to discuss its work in compiling voluntary best practice guidelines for wealth funds.

 

The meeting is expected to consider a preliminary paper of the IMF's work since November on preparing the guidelines. A draft of the best practice guidelines is expected by the IMF's annual meetings in October.

 

In response to questions, Lowery said Treasury had not felt under Congressional pressure to speed up issue of a set of principles for sovereign funds nor to supercede the work of the IMF and OECD on the issue.

 

"We're glad those institutions are working and moving along on this," he said. "We think this is very supportive of this process."

 

The principles reached between Treasury, Abu Dhabi and Singapore call for wealth funds to increase disclosure about their objectives to "reduce uncertainty in financial markets and build trust in recipient countries."

 

The funds should also have effective internal controls and strong risk management systems, Treasury said.

 

Countries that get the money, in addition to agreeing not to impose barriers, should make sure that their rules covering investment from abroad are "predictable" and backed by law, according to the proposed principles.

 

Sovereign wealth funds now have assets between $1.9 trillion (Dh7 trillion) to $2.9 trillion (Dh10.6 trillion) and this could grow to $15 trillion (Dh55 trillion) in the next eight years, the Treasury has estimated.

 

The Wall Street Journal reported on Tuesday that Abu Dhabi has pledged not to use its investments to further its political aims and has notified the Treasury Department of a set of principles that will guide its fund activities. (Reuters)