CIAO DATE: 11/2008

When Money Talks: Arab Sovereign Wealth Funds in the Global Public Policy Discourse

October 2008

Carnegie Endowment for International Peace

Abstract

The financial interdependence that sovereign wealth funds (SWFs) created between the West and the Arab world could help stabilize multilateral relations and promote economic development and political stability in the Middle East, concludes a new paper from the Carnegie Middle East Center. 

Sven Behrendt studies the rise of Arab SWFs, assesses their investment strategy, and evaluates the policies of Arab investors and Western nations.

He also analyses the political implications of policy initiatives, such as the International Working Group of Sovereign Wealth Funds convened by the IMF, which agreed to new voluntary principles and investment practices in Washington last Saturday.

Key conclusions:

• An international framework between investing and recipients nations is needed and should reflect the changing nature of the global market. A fragmented system of national policies is inefficient and in no one's interest.
• Arab investment managers need to adjust their strategies and take broader responsibility for the stability of the global financial markets. They can no longer play the role of quiet investors. 
• Arab public opinion, media, and civil society should take an interest in their countries' SWFs and demand a more transparent accounting of how the funds are being invested. 
• Western governments should acknowledge the increased bargaining power of the Gulf countries and reach out in a constructive manner. They must also avoid policy decisions based on misplaced fear of foreign domination and populist sentiments.

 Behrendt cautions: "It is vital that the International Working Group's work acquires a high degree of political legitimacy, anticipating the tremendous growth of SWFs in the mid-term future, further straining any new financial markets regime. Otherwise states will revert to national legislation in regard to regulating SWFs. The outcomes of these policy processes risk to largely be a function of the domestic discourse between pragmatists and populists in the Western countries." Sven Behrendt is a visiting scholar at the Carnegie Middle East Center. He is an expert in global policy issues, international negotiations, corporate strategy, and diplomacy. Prior to his appointment at Carnegie, he served in various management positions at the World Economic Forum and the Bertelsmann Group on Policy Research. He is a regular commentator on television and in the press on corporate strategy and globalization.

Resource link: When Money Talks: Arab Sovereign Wealth Funds in the Global Public Policy Discourse [PDF] - 182K