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Sovereign Wealth Funds: Threat or Salvation?

Author

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  • Edwin M. Truman

    (Peterson Institute for International Economics)

Abstract

This study examines the role of sovereign wealth funds (SWFs) in the global economy and financial system. Sovereign wealth funds are not a new phenomenon in international finance. Governments of a few countries have used similar entities to manage their international financial assets for several decades. Moreover, countries have always held international reserves, and government-owned entities have made cross-border investments for many years. Sovereign wealth funds or their equivalent pose profound issues for the countries that own them with respect to macroeconomic policy and the potential for corruption. They also raise issues for countries that receive SWF investments as well as for the international financial system as a whole because government ownership introduces potential political and economic power issues into the management of these cross-border assets. This study traces the origins of SWFs. It describes the issues raised by these large governmental holdings of cross-border assets for the countries that own them, for the host countries, and for the international financial system. The study lays out what is known about the 50-plus SWFs of various countries. Some countries have more than one such entity, and a sample of government-managed pension funds is included in this analysis because they raise most of the same basic policy issues. Using publicly available information that is provided on a systematic basis, the author has previously developed a "scoreboard" for these funds involving a number of elements grouped in four categories: structure, governance, transparency and accountability, and behavioral rules. The 2008 edition contributed to the development of a set of generally accepted principles and practices, the Santiago Principles, for SWFs by the International Working Group operating under the auspices of the International Monetary Fund. This publication presents an updated scoreboard for an expanded list of funds, evaluates the Santiago Principles, and examines current compliance with those principles. The study also examines the policies of recipient countries and the role of the Organization for Economic Cooperation and Development (OECD) investment codes. Finally, the study discusses the evolving role of SWFs in the context of the global economic and financial crisis and its aftermath and will make recommendations for the policies of countries both managing such funds and those that expect to receive investments from them in the future.

Suggested Citation

  • Edwin M. Truman, 2010. "Sovereign Wealth Funds: Threat or Salvation?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4983.
  • Handle: RePEc:iie:ppress:4983
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    Cited by:

    1. repec:eee:jpolmo:v:39:y:2017:i:5:p:843-860 is not listed on IDEAS
    2. Allie Bagnall & Edwin M. Truman, 2013. "Progress on Sovereign Wealth Fund Transparency and Accountability: An Updated SWF Scoreboard," Policy Briefs PB13-19, Peterson Institute for International Economics.
    3. repec:taf:oxdevs:v:45:y:2017:i:2:p:185-203 is not listed on IDEAS
    4. repec:bla:glopol:v:7:y:2016:i:4:p:577-583 is not listed on IDEAS
    5. Mardi Dungey & Renee Fry-McKibbin & Verity Linehan, 2014. "Chinese resource demand and the natural resource supplier," Applied Economics, Taylor & Francis Journals, vol. 46(2), pages 167-178, January.
    6. Allie Bagnall & Edwin M. Truman, 2011. "IFSWF Report on Compliance with the Santiago Principles: Admirable but Flawed Transparency," Policy Briefs PB11-14, Peterson Institute for International Economics.
    7. repec:taf:rripxx:v:24:y:2017:i:6:p:980-1003 is not listed on IDEAS
    8. Naotaka Sugawara, 2014. "From Volatility to Stability in Expenditure; Stabilization Funds in Resource-Rich Countries," IMF Working Papers 14/43, International Monetary Fund.
    9. Kamiński, Tomasz, 2017. "Sovereign Wealth Fund investments in Europe as an instrument of Chinese energy policy," Energy Policy, Elsevier, vol. 101(C), pages 733-739.
    10. David Kemme, 2012. "Soverign Wealth Fund Issues and the National Fund(s) of Kazakhstan," William Davidson Institute Working Papers Series wp1036, William Davidson Institute at the University of Michigan.
    11. Di Wang & Quan Li, 2016. "Democracy, Veto Player, and Institutionalization of Sovereign Wealth Funds," International Interactions, Taylor & Francis Journals, vol. 42(3), pages 377-400, May.
    12. Aktoty Aitzhanova & Shigeo Katsu & Johannes F. Linn & Vladislav Yezhov (ed.), 2014. "Kazakhstan 2050: Toward a Modern Society for All," Books, Emerging Markets Forum, edition 1, number kazakh2050, August.
    13. Frankel, Jeffrey A., 2012. "The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions," Scholarly Articles 8694932, Harvard Kennedy School of Government.
    14. Borisova, Ginka & Fotak, Veljko & Holland, Kateryna & Megginson, William L., 2015. "Government ownership and the cost of debt: Evidence from government investments in publicly traded firms," Journal of Financial Economics, Elsevier, vol. 118(1), pages 168-191.
    15. Jostein Tvedt, 2012. "Sovereign wealth funds, portfolio choice and corrective taxes," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 5(2), pages 187-196, December.

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