IMF Survey: Wealth Funds Group Publishes 24-Point Voluntary Principles

IMF News, October 15, 2008

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Canonical URL: IMF Survey: Wealth Funds Group Publishes 24-Point Voluntary Principles

The International Working Group of Sovereign Wealth Funds (IWG) published a set of 24 voluntary principles (the Santiago Principles) designed to ensure an open international investment environment.
Purpose of the Santiago Principles (IWG statement):
- Establish a transparent and sound governance structure that provides for adequate operational controls, risk management and accountability
- Ensure compliance with applicable regulatory and disclosure requirements in the countries in which SWFs invest
- Ensure SWFs invest on the basis of economic and financial risk and return-related considerations
- Help maintain a stable global financial system and free flow of capital and investment
The Santiago Principles specifically commit wealth funds to make a series of public disclosures while aiming to avoid placing SWFs at a competitive disadvantage in the marketplace.

SWFs are defined as special purpose investment funds or arrangements, owned by the general government, created by the general government for macroeconomic purposes; they hold, manage, or administer assets to achieve financial objectives and employ investment strategies including investing in foreign financial assets.
Common sources for SWFs: balance of payments surpluses, official foreign currency operations, proceeds of privatizations, fiscal surpluses, and/or receipts from commodity exports.
Historical and projected asset size:
- SWFs have operated at least since the 1950s.
- Market estimates suggest assets may rise further from $2-3 trillion today to about $6-10 trillion within five years.
Countries with the world's largest SWFs at present include China, Kuwait, Norway, Russia, Singapore, and the United Arab Emirates.
SWFs also exist in several middle-income countries, including Botswana and Trinidad and Tobago.

IWG membership (member countries):
- Australia, Azerbaijan, Bahrain, Botswana, Canada, Chile, China, Equatorial Guinea, Iran, Ireland, South Korea, Kuwait, Libya, Mexico, New Zealand, Norway, Qatar, Russia, Singapore, Timor-Leste, Trinidad and Tobago, United Arab Emirates, United States
IWG permanent observers:
- Oman, Saudi Arabia, Vietnam, Organization for Economic Cooperation and Development, World Bank
IWG co-chairs and facilitation:
- Co-chaired by Hamad Al Suwaidi (Undersecretary of Abu Dhabi's Finance Department) and Jaime Caruana (Director of the IMF's Monetary and Capital Markets Department).
- IMF staff facilitated and coordinated the work and provided technical support to the IWG.
Work on a permanent international sovereign wealth funds body:
- Consideration of a permanent body to represent SWFs would commence in early 2009.
- Potential roles: help SWFs build capacity, work together, adapt the Santiago Principles as necessary, and conduct outreach to improve global understanding of SWFs.

Free flow of capital and investment:
- IWG co-Chair Hamad al Suwaidi: implementation of the Santiago Principles seeks to ensure the international investment environment will remain open.
- The Principles include expectations that recipient countries will not subject SWFs to discriminatory measures to which other foreign or domestic investors in similar circumstances are not subjected.
International endorsements and dialogue:
- OECD Secretary General Angel Gurría: OECD provided inputs and observed the IWG work; OECD guidance to recipient countries combined with the Santiago Principles provides a robust framework to promote mutual trust and confidence.
- Joaquin Almunia, European Commissioner for Economic and Monetary Affairs: Santiago Principles amount to a global public good needed in "these turbulent times" to enhance mutual trust and preserve an open investment environment.
Role during global financial crisis:
- Jaime Caruana: SWFs' long-term horizons can contribute to financial stability; the Santiago Principles are more important because of the global financial crisis.
- David Murray (IWG drafting Chair): development and publication of the Santiago Principles was "all about trust"; convincing the world of commitment to openness was a core task.

IMF Survey online — October 15, 2008