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IMFSurvey Magazine: In the News

IMF Board Endorses Work Agenda on Sovereign Funds

Oil earnings are one of the revenue sources that have helped build up sovereign wealth funds, now becoming increasingly important in the international monetary and financial system (photo: Adek Berry/AFP)

State investment institutions

IMF Board Endorses Work Agenda on Sovereign Funds

By IMF Survey online

March 21, 2008

  • Board discusses IMF work on sovereign wealth funds
  • Work to be coordinated with SWFs and OECD
  • IMF staff to work with members and SWFs on development of voluntary best practices

The IMF's Executive Board gave the green light for further analysis on the role of sovereign wealth funds (SWFs) in the global economy and endorsed a proposal for the IMF to work with SWFs and other relevant parties to prepare a set of best practices for the state investment institutions.

At a meeting on March 21, the Board discussed a proposed work agenda relating to SWFs, which have gained in importance in the international monetary and financial system. The Board discussion provided an opportunity for Directors to discuss these funds, and ways to facilitate the development of a set of voluntary best practices by SWFs. This work would be coordinated with the work of the Organization for Cooperation and Development (OECD) on practices for recipient countries as appropriate.

SWFs have been around for a long time, at least since the 1950s. But their total size worldwide has grown dramatically over the past 10-15 years, with the IMF now estimating that they will rise from $2-3 trillion today to about $6-10 trillion within five years. At present, China, Kuwait, Norway, Russia, Saudi Arabia, Singapore, and the United Arab Emirates are among the countries that hold the world's largest SWFs. [see related story, "IMF Intensifies Work on Sovereign Wealth Funds."]

Impetus for growth

The main impetus for the growth of SWFs comes from high oil prices, financial globalization, and continued imbalances in the global financial system that have resulted in the rapid accumulation of foreign assets by some countries.

Many have welcomed the recent role of SWFs in providing capital to several large banks affected by the subprime mortgage crisis.

IMF staff will now start work with members and SWFs on the development of best practices, including the establishment of an international Working Group of SWFs to begin technical discussions and drafting work from April onwards.

The set of best practices would cover issues of public governance, transparency, and accountability principles—all of which should help enhance understanding of the operations of SWFs, the IMF says.

Evenhanded approach

"A better understanding of the role and practices of SWFs and the development of a set of best practices could help countries with SWFs benefit from the experience of other countries, strengthen their domestic policy frameworks and institutions, and further their macroeconomic and financial interests," said Jaime Caruana, Director of the IMF's Monetary and Capital Markets Department.

"Best practices and principles could also help ease concerns about SWFs in recipient countries and contribute to an open global monetary and financial system," he told a press briefing after the Board had concluded its session.

"In our view, the key to a successful result is one that is based on an inclusive, collaborative, and evenhanded effort," he added.

Comments on this article should be sent to imfsurvey@imf.org


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