Hostname: page-component-8448b6f56d-c47g7 Total loading time: 0 Render date: 2024-04-19T08:16:17.481Z Has data issue: false hasContentIssue false
  • English
  • Français

Developing Asia's Sovereign Wealth Funds: The Santiago Principles and the Case for Self Regulation

Published online by Cambridge University Press:  03 March 2011

Donghyun PARK  and
Gemma Esther ESTRADA
Donghyun PARK*
Affiliation:
Asian Development Bank, Philippines
Gemma Esther ESTRADA*
Affiliation:
Asian Development Bank, Philippines
*
dpark@adb.org and gestrada@adb.org
dpark@adb.org and gestrada@adb.org
Get access Rights & Permissions [Opens in a new window]

Abstract

Concerns in host countries about the investment activities of sovereign wealth funds (SWFs) arise from their non-commercial motives and lack of transparency. In response to such concerns, investor countries have begun to work together to set up the norms and laws which will define the governance and regulation of SWFs. In particular, the Santiago Principles have given birth to a set of voluntary principles and guidelines designed to guide their investment behaviour. In this article, we point out that the Santiago Principles are fundamentally consistent with the commercial self-interest of SWFs, which bodes well for the prospects of their voluntary adoption. The Santiago Principles serve a highly valuable role as a mechanism which signals and crystallizes the commitment of SWFs to comply with the basic rules and regulations of the countries in which they invest.

Type
Symposium: Sovereign Wealth Funds
Information
Asian Journal of International Law , Volume 1 , Issue 2 , 14 June 2011 , pp. 383 - 402
Copyright
Copyright © Asian Journal of International Law 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

Principal Economist, Economics and Research Department, Asian Development Bank, Manila, Philippines.

†

Economics Officer, Economics and Research Department, Asian Development Bank, Manila, Philippines.

The views expressed in this article are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank, or its Board of Governors, or the governments they represent.

References

1. PARK, Donghyun “Beyond Liquidity: New Uses for Developing Asia's Foreign Exchange Reserves”, Asian Development Bank (ADB) Economics and Research Department (ERD), Working Paper No. 109 (2007)Google Scholar.

2. AIZENMAN, Joshua and LEE, Jaewoo, “Financial Versus Monetary Mercantilism: Long-Run View of Large International Reserves Hoarding”, IMF Working Paper 06/280 (2006)Google Scholar; AIZENMAN, Joshua and LEE, Jaewoo, “International Reserves: Precautionary Versus Mercantilist Views, Theory, and Evidence”, IMF Working Paper 05/198 (2005)Google Scholar.

3. HVIDING, Ketil, NOWAK, Michael, and RICCI, Luca Antonio, “Can Higher Reserves Help Reduce Exchange Rate Volatility?”, IMF Working Paper WP/04/189 (2004)Google Scholar.

4. FRANKEL, Jeffrey and WEI, Shang-Jin, “Managing Macroeconomic Crises”, National Bureau of Economic Research (NBER) Working Paper No. 10907 (2004)Google Scholar.

5. MOHANTY, Madhusudan and TURNER, Philip, “Foreign Exchange Reserve Accumulation in Emerging Markets: What are the Domestic Implications?” (September 2006) BIS Quarterly Review 39Google Scholar.

6. EDISON, Hali, “Are Foreign Reserves in Asia Too High?” in International Monetary Fund, World Economic Outlook 2003 (Washington, DC: International Monetary Fund, 2003), 78Google Scholar; International Relations Committee Task Force, “The Accumulation of Foreign Reserves”, European Central Bank Occasional Paper Series No. 43, February 2006Google Scholar; GREEN, Russell and TORGERSON, Tom, “Are High Foreign Exchange Reserves in Emerging Markets a Blessing or a Burden?”, US Department of the Treasury Occasional Paper No. 6, March 2007Google Scholar.

7. PARK, Donghyun and ESTRADA, Gemma, “Are Developing Asia's Foreign Exchange Reserves Excessive? An Empirical Examination”, ADB Economics Working Paper No. 170, August 2009 (a comprehensive empirical analysis of developing Asia's reserve adequacy and confirming the presence of substantial amounts of surplus reserves in the region)Google Scholar.

8. ROZANOV, Andrew, “Who Holds the Wealth of Nations?” (2005) 15 Central Banking Journal 52Google Scholar.

9. Park, supra note 1, provides a comprehensive review of the emergence of SWFs in developing Asia.

10. International Working Group of Sovereign Wealth Funds, Sovereign Wealth Funds Generally Accepted Principles and Practices—“Santiago Principles”, online: IWG-SWF 〈www.iwg-swf.org/pubs/gapplist.htm〉.

11. SUMMERS, Lawrence, “Funds that Shake Capitalist Logic” Financial Times (29 July 2007)Google Scholar.

12. See BACKER, Larry Catá, “Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State Owned Enterprises and the Chinese Experience” (2009) 19 Transnational Law and Contemporary Problems 101Google Scholar; COHEN, Benjamin J., “Sovereign Wealth Funds and National Security: The Great Tradeoff” (2009) 85 International Affairs 713CrossRefGoogle Scholar.

13. For example, German Chancellor Angela Merkel expressed concern over the motivation of SWFs. See “EU to Consider Protection from State-Funded Foreign Takeovers” EurActiv (24 July 2007), online: EurActiv 〈www.euractiv.com/en〉. French President Nicolas Sarkozy went to the extent of pushing for the establishment within the EU to prevent foreign takeovers of strategic industries by SWFs. In contrast, some policy-makers from Britain have aired a more liberal approach. See TREANOR, Jill, “Europe Divided over Sovereign Wealth Funds” The Guardian (27 February 2008)Google Scholar; MORGAN, Bryn, “Economic Indicators”, House of Commons Library Research Paper No. 08/59 (2008)Google Scholar.

14. One example was the heated controversy surrounding Temasek Holdings’ purchase of Shin Corporation. which allegedly contributed to the change of government in Thailand. See, for example, MONTESANO, Michael J., “Political Contests in the Advent of Bangkok's 19 September Putsch” in John FUNSTON, ed., Divided over Thaksin: Thailand's Coup and Problematic Transition (Singapore: Institute of Southeast Asian Studies, 2009), 1 at 8Google Scholar.

15. See OECD, “Sovereign Wealth Funds and Recipient Country Policies”, OECD Investment Committee Report, 4 April 2008Google Scholar.

16. Commission of European Communities, A Common European Approach to Sovereign Wealth Funds, COM (2008) 115 provisional, online: EC 〈http://ec.europa.eu/internal_market/finances/docs/sovereign_en.pdf〉Google Scholar.

17. KELLY, Andrew and O'KEEFE, Nicholas, “The Santiago Principles: A Step Forward for Sovereign Wealth Funds” (2009) 14 Corporate Securities and Finance Law Report 1Google Scholar.

18. EPSTEIN, Richard and ROSE, Amanda, “The Regulation of Sovereign Wealth Funds: The Virtues of Going Slow”, University of Chicago Law and Economics, Olin Working Paper No. 469 (2009)Google Scholar.

19. See TRUMAN, Edwin, “Sovereign Wealth Fund Acquisitions and Other Foreign Government Investments in the United States: Assessing the Economic and National Security Implications”, Testimony before the Committee on Banking, Housing, and Urban Affairs, United States Senate, 14 November 2007Google Scholar; Commission of European Communities, supra note 16.

20. SCHÖNBERG, Stefan, “Sovereign Wealth Alarm” (Winter 2008) The International Economy 56Google Scholar.

21. See OECD, supra note 15; OECD, “Foreign Government-Controlled Investors and Recipient Country Investment Policies: A Scoping Paper”, January 2009 [OECD (2009)]Google Scholar.

22. Cohen, supra note 12.

23. See OECD, supra note 15; Commission of European Communities, supra note 16.

24. CHEN, George, “Chinese Sovereign Fund Turning to Natural Resources” New York Times (9 November 2009)Google Scholar.

25. SHERIDAN, Michael, “China's Sovereign Wealth Funds Set For Global Spending Spree” Sunday Times (22 June 2008)Google Scholar.

26. KOH, Joyce, “Judging Temasek's Growing Role in Merrill Lynch” MarketWatch (31 July 2008)Google Scholar.

27. In a speech before the Singapore Parliament in May 2009, the Minister of Finance Tharman Shanmugaratnam explained Temasek Holdings’ financial performance during the 2008 global economic crisis. In addition, the Minister had to defend the divestment of Temasek Holdings’ shares in Bank of America (BoA) following the acquisition of Merrill Lynch by BoA and held that “Temasek may divest an investment, even at a loss, to get a better mix of risks for its overall portfolio or to position itself to take advantage of opportunities elsewhere”. See Singapore Ministry of Finance, Speech by Minister for Finance Mr Tharman Shanmugaratnam, Parliament Session of 28 May 2009, online: Singov 〈www.news.gov.sg/public/sgpc/en/media_releases/agencies/mof/speech/S-20090528-1.html〉.

28. See, for example, International Monetary Fund, Global Financial Stability Report 2007: Financial Market Turbulence: Causes, Consequences, and Policies (Washington, DC: International Monetary Fund, 2007)Google Scholar.

29. See, for example, BEHRENDT, Sven, “Beyond Santiago: Status and Prospects” (2008) 19 Central Banking 75Google Scholar.

30. See, for example, OECD (2009), supra note 21.