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f_0016636_14378 - Sovereign Wealth Funds and the...

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The Whitehead Journal of Diplomacy and International Relations Sovereign Wealth Funds and the International Monetary System by Anthony Elson S ince the end of last year, much public attention has been focused on the growing importance of sovereign wealth funds (hereafter SWFs), which are large investment pools managed by national governments primarily among oil exporters and emerging market economies. Many of these governments have accumulated substantial foreign reserves because of large trade surpluses, some of which they have begun to invest in a range of financial instruments that is more diversified than is typically the case for central bank international reserves in order to improve the yield on their foreign asset positions. While SWFs have been in existence for many years, their recent growth reflects two significant developments in the international economic system: one is a redistribution of economic power and wealth away from the industrial economies toward rapidly growing emerging market economies, such as Brazil, China, India and Russia; and the other is a loss of confidence in, and diminished authority of the International Monetary Fund (IMF) which was created to exercise surveillance over the international monetary system. This article is intended to explain the nature of these two phenomena and how they are related, as well as the implications of these developments for the international economic reform agenda. S OVEREIGN W EALTH F UNDS AND THE B ALANCE OF I NTERNATIONAL E CONOMIC P OWER Sovereign wealth funds are currently estimated to hold assets of around US$3 trillion, spread among some 25 non-industrial economies, prominently China, Kuwait, Norway, Saudi Arabia, Singapore, and the United Arab Emirates (UAE), which maintain some of the largest such funds. Based on this estimate, the pool of resources managed by SWFs would be somewhat larger than that managed by hedge funds and private equity funds. While the financial resources managed by SWFs currently represent only around 1–2 percent of total financial assets traded in international markets, a number of analysts expect their value to grow to US$12-15 trillion by 2015. 1 In view of the rising influence of these state-run investment funds, Anthony Elson was a senior staff member of the IMF for many years, and more recently has served as a senior consultant to the World Bank, the Centennial Group, and the New Rules for Global Finance Coalition. He is also a Visiting Lecturer in Public Policy Studies at Duke University and Professorial Lecturer in International Economics at the Johns Hopkins School for Advanced International Studies. 71
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ELSON The Whitehead Journal of Diplomacy and International Relations some concerns have been raised as to whether their investment activity will be guided by purely commercial, as distinct from political or strategic, criteria.
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