Western nations must be more accomodating towards the SWFs
Sovereign wealth funds (SWFs) – economic saviours or
economic monsters, the debate continues. For the uninitiated, a SWF is a government-owned investment fund, which invests in all kinds of assets.They presently account for 2% of the world’s $165 trillion of traded assets. Politicians & governments of many countries fear that the investment objectives of SWFs are more politically driven rather than commercially inclined. After having infused around $70 billion in US financial institutions suffering from the subprime fiasco, resource firms seems to be their new found love. The almost moribund state of the financial institutions in which the sovereign wealth funds invested have made their investments unproductive. The China Investment Corporation (CIC), a Chinese sovereign wealth fund, faced severe criticism in Beijing because of its investment in the private equity firm, Blackstone Group LP. In June 2007, China acquired 9.9% stake of Blackstone for $3 billion. This 9.9% stake is currently worth only $2 billion, with 33% value eroded over the past one year. US politicians are also raising hue and cry. US Republican Congressman, Thaddeus McCotter, describes SWFs as a threat to economic liberty. However, Sherman Chen, Economist, Moody’s Economy.com counters, “The recent shift in investment preferences reflecting shifting economic outlook lends weight to the assertion that SWF investments aren’t driven by poltical purposes, but purely commercial ones.”
Nevertheless, countries that own major resources will call the shots in future. China’s imperialistic designs are no secret. Suppose China acquires a controlling stake in Citigroup. In case of a conflict with US, it may threaten to shut the bank down. But if China gets too carried away by its imperialistic tendencies, and uses its SWF as a tool of economic domination, it will in all probability end up creating a Frankenstein monster. The same goes for any other SWF that pursues any objectives other than economic ones. Rising global trade imbalances, which are the main cause of only a few countries having SWFs, are always a threat to global stability. Trade imbalances should be urgently checked & SWFs need to be more transparent. And western countries should stop being paranoid. And let Smith’s invisible hand take care of the rest!
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
Sovereign wealth funds (SWFs) – economic saviours or
economic monsters, the debate continues. For the uninitiated, a SWF is a government-owned investment fund, which invests in all kinds of assets.They presently account for 2% of the world’s $165 trillion of traded assets. Politicians & governments of many countries fear that the investment objectives of SWFs are more politically driven rather than commercially inclined. After having infused around $70 billion in US financial institutions suffering from the subprime fiasco, resource firms seems to be their new found love. The almost moribund state of the financial institutions in which the sovereign wealth funds invested have made their investments unproductive. The China Investment Corporation (CIC), a Chinese sovereign wealth fund, faced severe criticism in Beijing because of its investment in the private equity firm, Blackstone Group LP. In June 2007, China acquired 9.9% stake of Blackstone for $3 billion. This 9.9% stake is currently worth only $2 billion, with 33% value eroded over the past one year. US politicians are also raising hue and cry. US Republican Congressman, Thaddeus McCotter, describes SWFs as a threat to economic liberty. However, Sherman Chen, Economist, Moody’s Economy.com counters, “The recent shift in investment preferences reflecting shifting economic outlook lends weight to the assertion that SWF investments aren’t driven by poltical purposes, but purely commercial ones.”Nevertheless, countries that own major resources will call the shots in future. China’s imperialistic designs are no secret. Suppose China acquires a controlling stake in Citigroup. In case of a conflict with US, it may threaten to shut the bank down. But if China gets too carried away by its imperialistic tendencies, and uses its SWF as a tool of economic domination, it will in all probability end up creating a Frankenstein monster. The same goes for any other SWF that pursues any objectives other than economic ones. Rising global trade imbalances, which are the main cause of only a few countries having SWFs, are always a threat to global stability. Trade imbalances should be urgently checked & SWFs need to be more transparent. And western countries should stop being paranoid. And let Smith’s invisible hand take care of the rest!
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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