Saudi officials have, in the recent past, voiced concerns about the potential emergence of restrictions on sovereign investment flows. The International Monetary Fund (IMF) has repeatedly called for greater levels of public disclosure to dispel mistrust surrounding SWFs, even as calls grow for them to help rescue global markets. Ironically, the US, which is now at the receiving end of most of these investments, led the hostility against SWFs. Europe was not far behind. The US government beefed up the authority of its Committee on Foreign Investment while Germany’s government approved legislation that would give it greater authority to block foreign investments. Earlier in October, Italy’s foreign minister, Franco Frattini, sought a meeting with officials of ADIA as the country considered introducing measures to protect against foreign bids.
Rules of engagement. Heeding such calls, a group representing an estimated $2.3 trillion worth of SWFs, presented a set of voluntary principles to the IMF in early October. The International Working Group of Sovereign Wealth Funds (IWG) was established in May by ADIA and the IMF amid a backlash against increasingly large and high-profile investments by the funds that critics warned could be used for political ends. Nevertheless, at this meeting, in the Chilean city of Santiago, the group’s members agreed on 24 basic principles – Generally Accepted Principles and Practices (GAPP) – to guide investments abroad, including an emphasis on improving transparency.
Hamad al-Suwaidi, the undersecretary of the Abu Dhabi Department of Finance and a director of ADIA, who co-chairs the IWG, handed over those principles to the IMF’s policy steering body in Washington. “Through the implementation of the Santiago Principles, we seek to ensure that the international investment environment will remain open and our capital can continue to be put to use when it is most needed,” al-Suwaidi said. Weeks later, Mohsin Khan, the director of the IMF’s Middle East and Central Asia Department, affirmed to the Gulf News that Gulf SWFs will play a significant role in stabilizing the regional economies in the event of a global economic slowdown spilling over into the region. “[the] Gulf’s government-controlled funds that manage trillions of dollars from the oil surpluses are likely to step in to help businesses if they run into difficulties,” he said.
Despite their secrecy and reticence and general political concerns, the general consensus is for, rather than against, a constructive dialogue with SWFs – thanks mainly to the unprecedented crisis in the financial services industry across the world. The efforts of SWFs to provide a self-regulating code in the GAPP is likely to boost this acceptance, adds Singapore’s Shanmugaratnam, who argues that these announcing principles and practices will reinforce confidence in the role the SWFs play in global markets. “There has been greater appreciation globally of the constructive role they play as long-term players,” he says.
Nonetheless, whether they will continue to be as adventurous is anybody’s guess. The Peterson Institute’s Edwin Truman echoes the skeptical views of many because, in his own words: “The world is a dangerous place!”

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