Selected Decisions and Selected Documents of the IMF, Fortieth Issue -- The Acting Chair’s Summing Up—Sovereign Wealth Funds—The Santiago Principles—Generally Accepted Principles and Practices Developed by the International Working Group, Executive Board Meeting 08/87, October 3, 2008

Prepared by the Legal Department of the IMF
As updated as of April 30, 2019

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Exchange Arrangements and Surveillance
Capital Flows, Trade, and Sovereign Wealth Funds

The Acting Chair’s Summing Up—Sovereign Wealth Funds—The Santiago Principles—Generally Accepted Principles and Practices Developed by the International Working Group, Executive Board Meeting 08/87, October 3, 2008

Executive Directors commended the International Working Group of Sovereign Wealth Funds (IWG) for its intensive and collaborative efforts, which have led to a consensus on a voluntary set of generally accepted principles and practices (GAPPs)—also known as the Santiago Principles. The Principles represent a significant achievement by a group of 23 diverse countries with sovereign wealth funds (SWFs). Directors welcomed the professional role played by the Fund staff in facilitating, coordinating, and providing secretarial support to the Group. They also appreciated the contribution by the OECD and the World Bank, and the engagement of recipients of SWF investments to maintain an open investment regime.

Directors viewed the development of the Santiago Principles as a good example of collaborative engagement between countries with SWFs and the recipient countries. It is the first time that SWFs have set out a comprehensive framework to guide their institutional arrangements, governance structures, and investment decisions. The Principles, together with the SWF survey conducted by the Fund staff, also provide a useful point of reference for policymakers, financial markets, and the general public.

Directors stressed that the principles are voluntary in nature, and that their implementation is subject to home country laws, regulations, requirements, and obligations. Most Directors agreed that the Santiago Principles appropriately recognize a number of key elements. In particular, the Principles recognize the need for:

  • • First, sound and clear legal frameworks, and a governance framework that ensures separation of responsibilities and promotes operational independence in the management of SWFs and accountability, including through high-quality auditing and accounting standards;

  • • Second, SWF operations to be conducted in compliance with applicable regulatory and disclosure requirements in the countries in which they operate;

  • • Third, close coordination between the SWF’s activities and macroeconomic policy formulation where the SWF’s activities have direct domestic macroeconomic implications, and provision of data to the government, or other relevant agencies, for inclusion where appropriate in macroeconomic datasets;

  • • Fourth, the publication of relevant financial information relating to the SWF to demonstrate its economic and financial orientation;

  • • Fifth, investment decisions to be based on economic and financial grounds;

  • • Sixth, adequate risk management frameworks and regular internal reporting of investment performance;

  • • Seventh, public disclosure of an SWF’s general approach to voting securities of listed entities; and

  • • Eighth, regular review of the implementation of the Santiago Principles by the SWF or by its owner or governing bodies.

Most Directors believed that the implementation of the Santiago Principles by countries with SWFs will improve the understanding of SWF investment operations, and help alleviate concerns raised by countries that are recipients of SWF investments. This will help foster trust and confidence in the global operations of SWFs, and strengthen an open environment for cross-border investments. From the perspective of the SWF countries, the Principles provide SWFs with strong incentives to hold themselves to high standards. They will be helpful, in particular, in guiding the management of countries’ fiscal and external surpluses through SWFs in a sound, prudent, and accountable manner. In this way, the Principles should help to further strengthen the stabilizing benefits that SWFs bring to the global financial markets.

Notwithstanding the progress achieved, the IWG recognizes the need to keep the Santiago Principles under review as capital markets develop and sovereign institutional arrangements evolve, and to work to further improve the Principles over time. In particular, several aspects of the Principles could benefit from further work, such as those relating to the provision of comprehensive and reliable information about SWF activities, and potential risks to investment operations and SWF balance sheets. In this respect, a number of Directors encouraged SWFs to work toward public disclosure of their financial information, including annual reports and ex post voting records. Some other Directors stressed the need to ensure a level playing field vis-à-vis other institutional investors. A few Directors also underscored that, to preserve full ownership of the Principles by the SWFs, it will be important to continue with the voluntary approach going forward.

The issue of how to monitor the implementation of the Santiago Principles remains to be agreed upon by the owners of SWFs. Directors welcomed the intention of the IWG to consider establishing a Standing Group that could review the Principles and provide a forum for the exchange of ideas among SWFs and with recipient countries, as well as examine ways in which aggregate information on SWF operations could be collected and made available to the public. If established, it will be important for the Standing Group to take full cognizance of the relevance of the macroeconomic and financial stability perspectives in its work.

Directors stressed the importance of clear and nondiscrimina-tory policies by recipient countries toward SWF investments. They welcomed the progress being made by the OECD in this area, and encouraged continued dialogue and coordination between the OECD and SWFs. Directors also noted that several countries with SWFs are also becoming recipients of investments from other SWF countries. They looked forward to the guidelines by the OECD for recipient countries.

Most Directors agreed that the Fund staff should continue to play a constructive role in support of the work of the IWG. Most Directors also felt that the Fund staff can play a helpful role in facilitating the activities of the Standing Group once it is established. Some Directors emphasized, however, that, in the current tight budgetary environment facing the Fund, staff resources should remain focused on strategic priorities. A few Directors suggested that the possible modalities of future Fund involvement should be worked out in light of the experience gained with the Standing Group, and with the updated guidelines for recipient countries.


October 9, 2008

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