Sovereign Wealth Funds and Transparency

by Colin Gustafson
Tue, 12 Feb 2008 at 10:17 AM

Send

RSS

Two economist bloggers are voicing skepticism this week about the International Monetary Fund's efforts to establish a code of conduct among sovereign wealth funds.

For months, IMF officials have been pressuring these funds — many of which own large stakes in American banks that have been hobbled by the mortgage crisis — to be more "transparent" in their activities. The goal, officials say, is to ensure that the funds don't use their financial leverage to pursue their political objectives.

But blogger Yves Smith writes (Naked Capitalism) that such regulatory efforts are a charade, as most of the funds are driven largely by commercial, not political, interests.

Blogger Brad Setser, a fellow at the Council on Foreign Relations, holds a more balanced perspective on the matter (RGE Monitor):

"Sovereign funds are motivated by returns: none has a mandate to lose money," he writes. "As a result, most funds are unlikely to make investments that result in large losses … to produce political gains."

That said, sovereign wealth funds often are more inclined to pursue ostensibly commercial interests if there is a political benefit, as well, Mr. Setser notes. As evidence, he cites Dubai and Qatar's recent interest in Nasdaq as part of their competitive efforts to emerge as the Persian Gulf's regional financial center.

"Most sovereign funds," he writes, "seem quite keen to do 'deals' that offer the prospect of both strong financial returns and spillovers that benefit their home country."

AT ODDS OVER 'CREATIVE CAPITALISM' Nearly a month after Bill Gates urged corporate leaders to invest in poor nations, two University of Chicago economists are at odds over whether these altruistic calls for "creative capitalism" were a message the business community really needed to hear.

In a speech last month at the World Economic Forum in Davos, Switzerland, the Microsoft founder argued that companies could gain both profits and recognition by using market forces to aid the impoverished.

But professor Richard Posner doubts (Becker-Posner Blogthe relevance of this message — contending that charitable investment, if not profitable, will only put a company at a competitive disadvantage.

He adds that if there are indeed profitable opportunities to help the poor, firms naturally will gravitate to them. "It does not require Gates's urging for businesses to seek to exploit them," he writes. Mr. Posner's colleague, Gary Becker, appears to agree — but to a degree. "I do not see anything counterproductive with Gates and others giving encouragement to corporations to be more concerned with goals like distinction along with an interest in making profits," he writes. "The real test is how viable such motives are in a competitive market environment."

For more insight from the country's leading economics Web logs, go to nysun.com/blogs.php.

Economics on the Web Homepage