This post is by Rachel Ziemba filling in for Brad Setser.
The move towards a voluntary code of conduct for sovereign wealth funds took on new momentum today (see the previous developments). The Treasury Department just released policy principles for sovereign wealth funds agreed to in a meeting with representatives of the governments of Abu Dhabi and Singapore and the leaders of their sovereign wealth funds.
On all sides this seems like an attempt to show that they are serious about what is at stake. The treasury likely wants to avoid protectionist responses from Congress but still attract investment when it is needed. For Abu Dhabi and Singapore, they want to show themselves as responsible actors and play some role in setting those rules. It may a fire under the IMF discussions about good practices for sovereign investment. Recent discussions in the US and EU were clearly intended to make sure that some usable outcome came out of the IMF discussions.
There’s not much too contentious in here – funds should make explicit their non-political motivations, more disclosure is good and can reduce uncertainty as is risk management. and funds should abide by the regulations where they invest.
But even these funds have made no promises about disclosure. They only agree that disclosure may build trust and aid in assessment of systemic risks. This won’t go far enough for some.
In return, recipient countries should avoid protectionism, have proportionate responses to any national security concerns and strive to build as predictable an investment regime as possible. Furthermore, similar institutions should be treated similarly.
But it may not really change much. yet. The bigger issue is in whether sovereign funds will continue to (return to) investing or whether they might sit on the sidelines with cash for the duration.