Monday, March 10, 2008

Sovereign Wealth Funds Come Under Scanner

India has joined the global debat on Sovereign Wealth Funds (SWFs).
As a first step, the finance ministry is going to come up with a common working definition of such funds and identify their Indian holdings, said a senior official in the ministry who did not want to be named.
The issue contested is motive. Profit versus Strategic motives for investing. Loose governance standards can mean an individual's money moves in & out of SWFs while state owned firms can acquire stake in rival firms/countries for strategic objectives.

SWFs have existed for about 50 years, but it is their recent growth in size that has triggered concerns. According to the International Monetary Fund (IMF), SWFs’ sizes are likely to grow threefold over the next five years to $6-10 trillion. The recent growth in SWFs is being driven by foreign exchange surpluses generated by some countries on account of historic highs in oil prices and trade surpluses.

Australia recently became the first developed country to officially articulate a set of principles to be applied to scrutinize SWF investments. IMF has been asked by to come with proposals for a voluntary set of best practices in management of SWFs. Some countries with SWFs such as Singapore, operating through Temasek Holdings and Government Investment Corp., are open to following an IMF code to prevent a political backlash, the economist said. It is China’s aims which have many countries worried, said the finance ministry official. China, for its part, has been reluctant to submit to governance practices pushed by external agencies.
For full article please follow Mint

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