IMF May Back Fund Code
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The International Monetary Fund’s executive board is expected tomorrow to bless the staff’s effort to create a voluntary code of “best practices” to guide sovereign-wealth funds, giving a political boost to the efforts.
On a request from the Group of Seven leading nations — the U.S., Germany, Italy, Japan, Britain, France and Canada — the IMF has tried to put together a voluntary code of conduct to help sovereign-wealth funds persuade politicians in Europe and the U.S. that the funds are investing for commercial rather than political reasons.
Sovereign-wealth funds are vast, government-owned investment funds with more than $3 trillion in assets, which in the past six months have invested in capital-hungry financial firms, including Citigroup Inc. and Merrill Lynch & Co. in the U.S. and UBS AG in Switzerland. But the funds’ appetite for such investments has seemed to tail off as the financial crisis has deepened. The funds are powered by oil revenue, in the cases of Russia or Middle Eastern nations, or export revenue, in the cases of Singapore and China.
The IMF’s staff report doesn’t propose a definitive list of practices, according to several officials who have seen the document. Rather it is a kind of discussion paper that looks at areas such as disclosure, reporting, transparency and governance.
For instance, some funds already disclose the currencies they invest in. But that might not be wise, says one official who has read the report, because it could exacerbate foreign-exchange swings. The paper also generally endorses greater transparency.
The main significance is to give more political oomph to the process. Board members represent the IMF’s 185 members. Russia and China, which have been skeptical of the IMF efforts for fear that their investment efforts will be hampered, are expected to give general support to the IMF procedings, IMF officials say.
Filed by Anita Li under Financial Supervision, Corporate and Public Governance, Investment and Competition Policy