IMF Adopts Principles for SWFs

The IMF has been working since the spring to put together a set of practices that would guide the funds' behavior.

In a two-day meeting organized by the IMF in Santiago, Chile, which ended yesterday, members of the International Working Group of Sovereign Wealth Funds (IWG), which includes representatives from two dozen SWFs representing some $3 trillion, agreed on 24 principles to guide their behavior.

 
The IWG co-chairs, Hamad al Suwaidi, undersecretary of the Abu Dhabi Department of Finance and a director of the Abu Dhabi Investment Authority, and Jaime Caruana, counselor and director of the IMF's Monetary and Capital Markets Department, issued the following statement:

"We expect to present the GAPP framework to the IMFC next month so that the IMF's 185 member countries have an opportunity to review the voluntary principles and practices.

An important goal was to assure recipient countries that the funds "act from commercial motive rather than other motives," David Murray, chairman of Australia's Future Fund, which manages Australian government investments, told The Wall Street Journal.

The WSJ also quoted Murray as saying the the principles covered legal, institutional and macroeconomic issues, as well as governance, accountability, and investment strategies.

"We need to preserve the economic and financial interests of sovereign-wealth funds so as not to put them at a disadvantage" compared to hedge funds, insurance companies and other private institutional investments, said al-Suwaidi.

Abu Dhabi's involvement was critical because it signaled to other SWFs that they needed to make concessions to reassure the public in wealthy nations of their intentions.

The funds have felt they have been singled out unfairly, compared to private hedge funds that aren't being asked to disclose their secretive practices. Too much disclosure, the funds argued, could scare away some companies that might shun publicity. The funds insisted that the codes are viewed as voluntary, even though political pressure was clearly being applied by the IMF and the U.S.

To make the principles sound as neutral as possible, the funds dubbed them "Generally Accepted Principles and Practices," which, the WSJ noted, "sounds reassuringly like the politically neutral 'Generally Accepted Accounting Principles.'"