Flaherty backs code for sovereign funds

Fri Jan 25, 2008 11:27am EST
 
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By Mike Dolan

DAVOS, Switzerland (Reuters) - Sovereign wealth funds have an important role to play in the world economy, but agreed international guidelines on the nature of their investments would be welcome, Finance Minister Jim Flaherty said on Friday.

In an interview with Reuters, Flaherty said concerns about the motivation of these funds, which are run by governments mostly in the Middle East and Asia to invest windfall income from oil and other exports, needed to be tackled.

"We do need to deal with the questions which arise with respect to the sovereign wealth funds," he said on the sidelines of the annual World Economic Forum in Davos. "They are playing an increasingly important role and so we need to deal with those concerns that have been expressed."

State-controlled investors have provided much-needed capital in recent weeks for U.S. and European banks hit by huge losses linked to the U.S. sub-prime mortgage crisis.

But concern is growing concern in some western countries that these funds may be used as tools of their governments' foreign policies, worries that sovereign fund representatives in Davos have dismissed as groundless.

"I think we could benefit from a set of principles," Flaherty said, referring to calls on the International Monetary Fund and Organisation for Economic Cooperation and Development to draw up a set of best practices.

But he said he was comfortable to date with the sort of investments being made despite. "We've seen evidence lately on investments by sovereign wealth funds that they actually contribute to financial stability in the capital markets," he added, referring to their stake building in big U.S. banks hit by the credit crisis.

Flaherty said a meeting of the Group of Seven finance ministers in Tokyo on February 9 would focus on the six-month-old credit crisis and on the sovereign funds issue.   Continued...

 
<p>Finance Minister Jim Flaherty speaks at the Association for Corporate Growth's (ACG) "Capital Connection" in Toronto, November 15, 2007. Sovereign wealth funds have an important role to play in the world economy, but agreed international guidelines on the nature of their investments would be welcome, Flaherty said on Friday. REUTERS/Mark Blinch</p>