SWF receivers should avoid discrimination

 

Countries that receive investments from government-owned wealth funds should not discriminate against them nor allow fear and mistrust to feed rising protectionism, the OECD said on Saturday.


The Paris-based Organisation for Economic Cooperation and Development said its members, which include the world’s big industrialised nations, had committed to keeping their investment frontiers open to funds provided the funds invest for commercial rather than political ends.

Wealth funds, with assets of more than $2 trillion (Dh7.34trn) and growing fast, have been a source of angst in many Western countries because of concern they might pose a national security threat should they seek to obtain sensitive information or destabilise markets through their investments.

In a report on sovereign wealth funds (SWFs) and recipient country policies, the OECD said its members had agreed to be guided by principles of non-discrimination and to ensure that their rules governing foreign investors were clear and predictable.

“As is often the case, when new actors emerge on the international financial scene, the players need to become better acquainted,” the OECD said in a recent report to IMF’s International Monetary and Financial Committee.

“The growing role of SWFs raises issues regarding the smooth functioning of financial markets and they raise investment policy questions, including legitimate concerns in recipient [countries],” it said.

The Group of Seven rich nations had asked the OECD and the IMF to study wealth funds and come up with a list of best practices to guide their investments.

“The resulting framework will foster mutually-beneficial situations where SWFs enjoy fair treatment in the markets of recipient countries and these countries can confidently resist protectionism pressures,” the OECD said.

These wealth funds, concentrated in the major oil producing countries as well as key Asian exporters such as China, have drawn closer scrutiny as they step up investment in Western countries. In recent months, they have invested billions of dollars in banks whose balance sheets were battered by the financial market turmoil.

Some of the funds have complained that countries were discriminating against them, and restrictions placed on them amounted to protectionist walls.

Angel Gurria, the OECD’s secretary-general, said he welcomed efforts by the US Treasury Department to open discussions with wealth funds. He said the new lines of communication were “slowly removing some of the harder edges” of the sometimes strained relationship.

The Treasury signed a pact with wealth funds from Singapore and Abu Dhabi that it hopes will become a model for the IMF to follow in its guidelines for wealth fund operations. The Treasury is also expected to release tighter rules later this month detailing how they will vet transactions for funds. (Reuters)
 
 
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