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WASHINGTON: The raging financial crisis is presenting both challenges and opportunities for sovereign wealth funds, which manage an estimated US$2 to US$3 trillion for various national governments around the world.
Participants in this weekend's International Monetary Fund (IMF) meetings in Washington are expected to sign off on a set of guidelines for the funds, designed to address concerns about their role and growing importance.
Singapore has been at the forefront of the effort to promote greater transparency and discourage politically motivated investment.
The role of sovereign wealth funds was already on the agenda for these annual meetings of the World Bank and IMF, but – like everything else here – the conversation will be couched in terms of the ongoing financial turmoil.
World Bank president Robert Zoellick would doubtless prefer to focus on his call, earlier in the year, for the funds to invest one per cent of their holdings in equity in sub-Saharan Africa.
But he has acknowledged the role they can play in addressing the wider crisis.
"You will also see the sovereign wealth funds – and they have already been doing this – play a role in recapitalising financial institutions. You've already seen some of those investments and I undoubtedly believe that you'll see more. So, it's part of the change in the international financial and economic system," said Mr Zoellick.
It is a change that has thrust sovereign wealth funds into the spotlight, often as a source of concern.
In an effort to head off any protectionist backlash, the investment dependent United States agreed on a set of policy principles with Singapore and Abu Dhabi, which both control massive funds.
Since then, the spiralling financial crisis and plunging markets have helped those who portray sovereign wealth funds as a welcome source of stability.
Jaime Caruana, director, IMF's Monetary and Capital Markets Department, said: "At this very moment when people are too concentrated on the short run and on the short-run concerns, I think institutions that are able to look at longer time horizons probably could play a very important stabilising role.
"I hope at some point of time that they think that it is in their best interests to find the distressed assets that are at a good price and they can step in and help to stabilise financial markets."
There are even more distressed assets available after stocks took another hammering on Wall Street.
It is still not clear whether the dire need for rescue will overcome residual political concern here about the long-term implications of foreign government funds snapping up American assets in what amounts to a massive fire sale.
- CNA/so
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