GLOBAL - The Sovereign Wealth Funds (SWF) International Working Group (IWG) has reached a "preliminary agreement" on a set of voluntary practices and principles to be presented to the International Monetary Fund (IMF) in October.
Following the third meeting of the IWG in Santiago, Chile, representatives agreed a draft set of Generally Accepted Principles and Practices (GAPP) for recommendation to their respective governments.
The IWG was established in May 2008, following growing concerns from recipient countries that investment from SWFs could impact national security or be driven by non-commercial motives.
As a result, the GAPP - which will be presented to the IMF's International Monetary and Financial Committee (IMFC) on 11 October 2008 - is a voluntary framework that aims to "guide the appropriate governance and accountability arrangements, as well as the conduct of appropriate investment practices by SWFs".
In a statement, the co-chairs of the IWG - Hamad al Suwaidi, undersecretary of the Abu Dhabi department of finance and director of the Abu Dhabi Investment Authority (ADIA), and Jaime Caruana, director of the IMFC department- said the draft GAPP was a "significant step" to have taken within just four months.
They added: "These principles and practices will promote a clearer understanding of the institutional framework, governance, and investment operations of SWFs, thereby fostering trust and confidence in the international financial system."
In addition, the IWG confirmed it has agreed to explore the establishment of a standing group of SWFs, to meet the need to carry forward work relating to GAPP and to facilitate talks with institutions and countries regarding nay developments that impact SWF's operations.
It claimed the work relating to the development of GAPP had highlighted the importance of the need for a "regular consultative mechanism" for SWFs to continue discussions both amongst themselves and with others.
The co-chairs said: "An SWF formation committee is being established to examine its constitution and terms of reference. We hope this will allow all SWFs, on a voluntary basis, to continue to ensure the GAPP is kept under review as macroeconomic, financial market, and cross-border investment regimes evolve."
"The group will seek to reinforce the role of SWFs as a positive and stabilizing part of the global economic and financial system," the statement concluded.
Meanwhile, John Lipsky, first deputy managing director of the IMF, said the draft GAPP "specifies practices and principles in three key areas, including the fund's legal and macroeconomic framework; governance and institutional structures; and investment and risk management practices".
Lipsky said although the recent concerns raised by recipient countries have "little or no basis in the way SWFs have operated up to now", he warned it was important to avoid negative perceptions or run the risk of a "protectionist backlash".
As a result, the GAPP document also aims to help maintain the free flow of cross-border investment and sustain open and stable financial systems.
"The GAPP represents a valuable solution that, alongside the ongoing work of the OECD and its members, should help secure the global environment for effective and beneficial cross-border investing, while ensuring that the SWFs will continue to play their meaningful and constructive economic and financial role for the foreseeable future," added Lipsky.
The OECD published guidance in April for recipient countries of SWF investment, that is designed to complement the GAPP produced by the IWG, and which recommended "restraint" by countries when protecting essential security interests. (See earlier IPE article: OECD agrees 'restraint' on SWF security fears)
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