ARTICLE: “A Fear of Foreign Investments: Will Governments Use Their Holdings To Try to Meddle In U.S. Affairs?” by Steven R. Weisman, New York Times, 21 August 2007, p. C1.

Per my SWF column of weekend before last, this piece notes the following:

… the Bush administration is pressing the International Monetary Fund and the World Bank to examine the behavior of these funds, which control up to $2.5 trillion in investments, and develop possible codes of conduct for them. Among the proposed rules would be an obligation to disclose investment methods and to avoid interfering in a host country’s politics. Officially, the United States welcomes all investments, except those that could compromise national security.

Just like I said in the piece: a few areas will be off-limits, others less so, and some will be wide open. But what really worries the West most about SWFs is that they’re so new and large and we don’t have a significant past experience to allow for the discounting of perceived risk (clearly a more slippery subject here). So the Bush administration does what makes sense: it starts pushing the IMF and WB toward an enunciation of acceptable behavior. One Western fear is described as “philosophical.” It directly echoes a point I made in my piece:

Now, with sovereign wealth funds, many experts are asking whether cross-border investment is evolving into cross-border nationalization, raising the prospect of government interference in free markets, only this time, in other countries’ markets.

As I had put it, it’s one thing to practice state-directed capitalism in your own backyard, it’s another thing to use the proceeds to start messing around in my free-market economy. The next concern cited in the piece was the size of the funds and their capacity to make self-fulfilling bets. So yeah, reading Weisman’s piece was a nice ego boost because he covered all the same points I had raised in my piece, so the former economics student in me felt like I got a passing grade from a writer I really respect. And actually, all that really proves is that I felt a bit nervous writing on such a purely economic subject. Neat chart on the jump page that shows the world’s largest sovereign funds. You can see how most were created in the last few years (Russia, China, Qatar, Algeria, Australia, South Korea, Kazakhstan, Venezuela, Iran and New Zealand). A couple reach back to the 1990s (Norway, Malaysia). Starting in the 1980s were Singapore and Brunei. The first wave started in the 1970s (UAE [still the biggest], Kuwait, Singapore [its first], U.S. [the Alaska Permanent Fund--tied to oil, natch], and Canada [ditto]. One goes back to 1960 (Kuwait). What’s clear is this: countries start them after resource booms or after periods of sustained trade imbalances that build up their currency reserves. Niche thing in the past, but something emerging markets are increasingly creating in this stage of the global economy’s spread.