How about some reciprocal gratitude?
A follow-upon my last post on sovereign wealth funds (SWFs). I quoted the head of the Norway’s fund saying, “”It seems you don’t like us, but you need our money.” It strikes me that one could flip that around. Not for norway, but for most of the countries now sprouting SWFs, the line should read: ...
A follow-upon my last post on sovereign wealth funds (SWFs). I quoted the head of the Norway's fund saying, ""It seems you don't like us, but you need our money." It strikes me that one could flip that around. Not for norway, but for most of the countries now sprouting SWFs, the line should read: ""It seems you don't like us, but you need to invest your money with us." Countries are developing sovereign wealth funds for a number of reasons: 1) They're accruing massive current account surpluses because of commodity booms or misaligned currencies 2) They can't reinvest most of these surpluses domestically, because of concerns about sterilization, inflation, the Dutch disease, etc. 3) Holding these assets simply as reserves is not terribly profitable. 4) Therefore, they need to find a place to invest. Places with capital markets large and deep enough to absorb the gargantuan levels of investment without distortion. In other words, the United States and the European Union. There is no question that, right now, western financial markets could use the money. However, it's also worth pointing out that there are not a lot of non-OECD markets receptive to large-scale SWF investments. Indeed, the very countries ginning up sovereign wealth funds at the moment are the most protectionist when it comes to foreign direct investment. A Russian SWF is not going to find a receptive audience in China -- and vice versa. Am I missing anything?
A follow-upon my last post on sovereign wealth funds (SWFs). I quoted the head of the Norway’s fund saying, “”It seems you don’t like us, but you need our money.” It strikes me that one could flip that around. Not for norway, but for most of the countries now sprouting SWFs, the line should read: “”It seems you don’t like us, but you need to invest your money with us.” Countries are developing sovereign wealth funds for a number of reasons:
1) They’re accruing massive current account surpluses because of commodity booms or misaligned currencies 2) They can’t reinvest most of these surpluses domestically, because of concerns about sterilization, inflation, the Dutch disease, etc. 3) Holding these assets simply as reserves is not terribly profitable. 4) Therefore, they need to find a place to invest. Places with capital markets large and deep enough to absorb the gargantuan levels of investment without distortion. In other words, the United States and the European Union.
There is no question that, right now, western financial markets could use the money. However, it’s also worth pointing out that there are not a lot of non-OECD markets receptive to large-scale SWF investments. Indeed, the very countries ginning up sovereign wealth funds at the moment are the most protectionist when it comes to foreign direct investment. A Russian SWF is not going to find a receptive audience in China — and vice versa. Am I missing anything?
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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