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IMF taking closer look at sovereign wealth funds' clout

The IMF said on Friday that it was ratcheting up its scrutiny of sovereign wealth funds (SWFs) because of their rapidly growing financial clout.

IMF officials are planning to develop a blueprint of voluntary best practices for the government-run investment funds which straddle international markets and control estimated assets of between US$2 trillion and US$3 trillion.

"Official and private commentators have expressed concerns about the transparency of SWFs, including their size, and their investment strategies and that SWF investments may be affected by political objectives," an IMF staff paper said.

BIG STAKES

A number of governments, including oil-rich Middle East states, run large investment pools, some of which have snapped up big stakes in corporate America.

The Abu Dhabi Investment Authority (ADIA) of the United Arab Emirates and Singapore's Government Investment Corporation (GIC), which control funds with estimated assets of hundreds of billions of dollars, are two of the world's biggest funds.

ADIA invested US$7.5 billion in Citigroup, the US banking giant, in late November, followed by GIC, which snapped up a US$6.8 billion shareholding in the financial group this year.

Representatives from both funds were in Washington last week and met US Treasury Secretary Henry Paulson on Thursday.

The IMF staff paper, which was released to the media, also stated that the funds have become concerned about potential protectionist barriers which might be erected by some governments and could hamper their investments.

BEST PRACTICES

IMF officials said they hope to establish an international working group of sovereign wealth funds to develop a set of best practices.

The staff paper suggested that a set of principles and practices could be presented to the IMF board of directors for review ahead of the Fund's annual meetings for this year in October.

The Washington-based IMF, which has 185 member countries, would put together a blueprint for best practices under its remit of promoting global financial stability.

The IMF's working paper was released a day after the US Treasury said it had reached a series of agreements with the ADIA and GIC covering investments in US markets.

Other governments including Iran, SOuth Korea, Kuwait, Libya, Norway and Saudi Arabia also run sovereign wealth funds and China and Russia have more recently set up such investment pools.

Several funds, which seek to boost government revenues, have seen their financial muscle swell in the past year due to skyrocketing crude oil prices.
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