The International Working Group of Sovereign Wealth Funds (IWG) met on July 9-10, 2008 in Singapore to continue deliberations on a set of Generally Accepted Principles and Practices (GAPP) relating to sovereign wealth funds (SWFs). This was the second IWG working session since the group’s establishment on May 1, 2008 in Washington D.C. (see Press Release No. 01/08 at http://www.iwg-swf.org/pr/swfpr0801.htm). The IWG’s drafting group also met separately in Oslo in June.

The IMF facilitates and coordinates the work of the IWG, and provides the secretariat to the work of the IWG and in the drafting of the GAPP.

IWG co-chairs Mr. Hamad al Suwaidi, Undersecretary of the Abu Dhabi Department of Finance and a Director of the Abu Dhabi Investment Authority, and Mr. Jaime Caruana, Counsellor and Director of the International Monetary Fund’s Monetary and Capital Markets Department, thanked the Singapore government and the authorities for hosting the latest IWG meeting. Singapore Finance Minister Tharman Shanmugaratnam, along with European Commission Director-General for Economic and Financial Affairs Klaus Regling, also addressed the IWG.

At the conclusion of the Singapore meeting, the IWG co-chairs issued the following statement:

“We continue to make progress on drafting the GAPP. The consensus among members to develop the GAPP has contributed significantly to the progress that has been achieved during the latest working session. While our work will continue into the autumn, it is clear the IWG remains committed to the goal of establishing voluntary principles and practices by October 2008.

“With the direct input of SWFs via the IWG, the GAPP aims to promote a clearer understanding of the institutional framework, governance, and investment operations of SWFs that continue to support the maintenance of an open and stable investment climate globally. 

“On behalf of the IWG, we would like to recognize the active participation and contribution of representatives from recipient countries, and the Organization for Economic Cooperation and Development, in establishing commonalities with the work of the IWG. We particularly appreciate the inputs from the European Commission.

“The IWG has established a process of continuing engagement with recipient countries, and has invited them to IWG working meetings to enable recipients of SWF investment to contribute to the ongoing work of the group. The latest exchange was constructive, and each round of discussion has enhanced our mutual understanding and provided clarity on aspects relevant for development of the GAPP. In Singapore, we met with representatives from Australia, Canada, France, Germany, India, Italy, Japan, the United Kingdom, and the United States, in addition to the European Commission. The OECD staff also provided an update on the organization’s work in drafting best practices for recipient countries. The IWG remains committed to keeping its work process open and consultative with the recipient countries. The IWG’s membership also recognizes that these discussions will be ongoing to facilitate development of a GAPP that becomes part of the international financial architecture and which serves all countries – recipients and investors—equally.

“The IWG will conduct its third full working-level meeting in Santiago, Chile on September 1-2, 2008. The meeting will be hosted in partnership with the Government of Chile, and will be convened ahead of the October 11, 2008 meeting of the IMF’s policy-guiding International Monetary and Financial Committee in Washington, DC.”

The IWG member countries are: 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 & Tobago, the United Arab Emirates, and the United States. Oman, Saudi Arabia, Vietnam, the OECD, and the World Bank, participate as permanent observers.

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Singapore Finance Minister Tharman Shanmugaratnam, in his address to the IWG members, shared certain key considerations that could guide the IWG discussions. He said it was critical to preserve the benefits that SWFs bring to global markets, which were their ability to take a long view and ride out cycles, and to take risks that were distinct from the bond and equity benchmarks. Enhanced disclosure on the part of many SWFs was necessary to build trust, but the forms and extent of public disclosure had to support these strategic benefits that SWFs bring and not undermine them. He added that as we experience a rebalancing of the global economy, investments of surpluses by emerging economies in the developed markets, including direct investments, will enhance their stake in the well being of the developed economies. The principles and practices for SWFs should support this growing interconnectedness, and not deter it.

Minister Tharman was optimistic that the IWG process will produce meaningful and credible principles and practices for the SWFs that most would want to follow.

Background Information on the GAPP:

Purpose of the GAPP

·                    The number and size of SWFs are rising, and their presence in international capital markets is becoming more prominent. The IWG recognizes that with the growth of the SWFs and their global importance their investment practices must be in line with the promotion of long-term global financial market stability, from which they would also benefit.

·                    The main purpose of the GAPP is to set out a framework of sound operation of SWFs. Elements of the GAPP involve a review of good SWF practices used in a number of countries, and a distillation of concepts and practices that are applicable to SWF activities, and already in use so that they properly reflect SWFs investment practices and objectives.

·                    The GAPP will help improve understanding of SWFs in both the home country and recipient countries. This understanding will contribute to the stability of the global financial system, and help to maintain an open and stable investment climate.

·                    The SWFs are of the view that the GAPP, together with the OECD’s best practices guidance for recipient countries, will help achieve their shared aim of maintaining a stable, transparent, and open investment environment. Collective effort is needed on the part of the recipient countries, as well.

The nature of the GAPP

·                    The GAPP will be a voluntary document, which the members of the IWG support and either adhere to, or aspire to implement. The principles and practices laid out in the GAPP can be expected to guide the SWFs to invest professionally in accordance with their investment policy objectives.

·                    The GAPP will reflect core principles for SWFs laid out by the IWG in its terms of reference: (i) to help maintain a stable global financial system and free flow of capital and investment; (ii) to comply with all applicable regulatory and disclosure requirements in the countries in which they invest; (iii) to invest on the basis of economic and financial risk and return related considerations; and (iv) to have in place a transparent and sound governance structure that provides for adequate operational controls, risk management, and accountability.

For additional information on the IWG see: http://www.iwg-swf.org/index.htm