21 Feb 08
Western arguments against sovereign wealth funds, which have made high profile investments in banks, are driven by irrational fears and a nationalistic backlash, a senior Singapore government minister said on Thursday.
State-backed funds from Singapore, South Korea, China and the Middle East have recently tapped their big foreign exchange reserves and pile of petro-dollars to buy large stakes in western banks hit by losses related to loans in the troubled U.S. housing market.
Still, there were legitimate concerns about wealth funds so Western and Asian nations should work together to improve their transparency, said Goh Chok Tong, senior minister and also chairman of the central bank.
“Underlying the debate are irrational fears and a nationalistic backlash fuelled by domestic politics and economic problems that cloud reason,” Goh said at a conference in South Korea, according to a speech released by the Singapore government.
The acquisitions by sovereign wealth funds have drawn criticism from some politicians around the world worried about the effects of the funds on economic and financial security. They are trying to determine if the aims of the funds are political or purely profit driven.
“The West and Asia should cooperate to work out transparency rules governing sovereign wealth funds, while at the same time ensuring open investment regimes on all sides,” said Goh, who was also a former prime minister.
Singapore’s Temasek and the island’s bigger Government of Singapore Investment Corp (GIC) recently bought stakes in Citigroup , UBS and Merrill Lynch.
The GIC, which manages Singapore’s foreign reserves, has over $100 billion but has never revealed the exact size of its portfolio. Temasek started to issue an annual report from 2004.
Goh said the stakes that government funds bought in western banks showed that sovereign wealth funds are “long-term players” that are “mutually beneficial” to all parties.
The U.S. congressional Joint Economic Committee said earlier this month that the Congress will consider legislating sovereign wealth funds if the International Monetary Fund does not quickly come up with a voluntary code of conduct for the wealth funds.
Australia said earlier this month it will study more closely investments into the country by sovereign wealth funds because they raised issues related to national interests.
More than 20 sovereign wealth funds manage between $1.9 trillion and $2.9 trillion around the world, according to the U.S. Senate Banking Committee and the International Monetary Fund.