STATEMENT OF ITALIAN REPUBLIC IN INTERNATIONAL MONETARY FUND FORUM Ms. Tengku Iari Vehuliza Mr.

Yanuar Priambodo

Ladies and Gentlemen, all the distinguished delegates. First of all, on behalf of the Italian Republic, I would like to convey my sincere gratitude to honorable Mr. Chairperson for convening this very important event. May under your guidance, this discussion would run very well and there would be excellent solutions to offer for all of us. I would also express my deepest gratitude for the opportunity given to me as the representative of the Italian Republic to reveal my opinions about the current issue we are facing—the sovereign wealth funds. Sovereign wealth funds (SWFs) have received considerable attention in recent years in response to rapid growth in their size, number and influence. This growth has been precipitated by large and persistent surpluses of foreign reserves among oil-producing countries and export-led emerging Asian economies. SWFs are special-purpose investment funds owned by governments; typically, they are created to reinvest foreign exchange reserves. Honorable delegates, today, most SWFs seek to diversify national assets and reduce the opportunity costs of holding relatively low-interest foreign debt by pursuing investments with higher rates of return. As foreign reserves continue to grow, these SWFs are emerging as a new type of international investor. In view of the lack of disclosure often associated with SWFs, it is difficult to determine the level of global SWFs investments with any precision. The International Monetary Fund (IMF) estimates that the total size of SWFs investments is roughly 2 to 3 trillion US dollars (USD) and may reach 6 to 10 trillion USD by 2013. 1 SWFs have become more influential in global financial and commodity markets. However, it is important to put this influence in perspective: the 2 to 3 trillion USD in SWFs investment is dwarfed by the global value of roughly US$165 trillion of all traded securities (equity and debt).2 Most countries welcome SWFs investments as a stable funding source with long investment horizons, lower levels of leverage and relatively few liquidity constraints, especially during periods of turbulence. The subject of SWFs was raised for the first time at a G7 finance ministers’ meeting in October 2007, where it was agreed that a multilateral approach was needed. To this end, both the IMF and the Organisation for Economic Co-operation and Development (OECD) worked with the International Working Group of
1

IMF Intensifies Work on Sovereign Wealth Funds, cited from http://www.imf.org/external/pubs/ft/survey/so/2008/POL03408A.htm on 2nd of April 2010, 05.32 PM 2 Loc.Cit

Sovereign Wealth Funds (IWG), a newly formed group of SWFs investors, to address concerns surrounding the rise in influence of SWFs. In October 2008, the IWG with the assistance of the IMF established a set of voluntary guidelines outlining a set of general policies called the Generally Accepted Principles and Practices (GAPP), or the “Santiago Principles.” These comprise 24 principles aimed at addressing key areas of concern such as the separation of political interests from the management of SWFs. Their overriding purpose is to ensure proper governance of these funds and to ensure that their investment practices are “prudent and sound.” Among the 24 principles is a requirement for the public disclosure of “policies, rules, procedures, or arrangements in relation to the SWFs’s general approach to funding, withdrawal, and spending operations.” 3 Honorable delegates, foreign investments in Italy needed strategic assessment. We’re trying to prepare a primary strategy. Our country also needs to promote useful investments and prevent dangerous ones. Our country trusts funds that operate transparently, that aim at investing in and not controlling businesses and that, therefore, tend to stay at under 5%. Transparency is a deciding element for our government. We had set up a national interests committee to establish rules about the funds’ behavior. A 5 per cent stake ceiling would make Italy one of the more restrictive markets for sovereign wealth funds among European countries. We prove it with our amount of investment, 4% share of completed investment transaction within European Union countries by June 2009.4 We would examine which funds adhered to the Santiago principles released this month by the International Working Group on Sovereign Wealth Funds under the auspices of the International Monetary Fund. The 24 Santiago principles stress topics like transparency, and the adoption of financial rather than political criteria for investments together with the necessity of adhere to local regulatory requirements. There are some sectors in which the funds’ intervention would be particularly beneficial—such as infrastructure, transport and tourism—while we are counting, for example, on industrial cooperation in the field of defense and not on capital investment. Our country hopes that other recipient countries should strive to avoid protectionism and uphold fair and transparent investment frameworks; together we make transparent and protected funds. Sovereign wealth fund’s host countries should be apprehensive that motives other than commercial interests may come into play in the foreign investment activities of sovereign wealth funds, particularly if they result in sensitive acquisitions. Sovereign wealth funds may actually add to market volatility because of the magnitude of their investments and the possibility of sudden changes in investment strategies. Further, sovereign wealth funds bring significant benefits to global capital markets in terms of increasing market liquidity and financial resource allocation.
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IMF Working Group Drafts Guidelines for Sovereign Wealth Funds, cited from http://www.imf.org/external/pubs/ft/guidelines/so/2008/POL03408A.htm on 2nd of April 2010, 05.23 PM 4 Sovereign Wealth Funds 2010, www.ifsl.org.uk/.../CBS%20Sovereign%20Wealth%20Funds%202010.pdf on 2nd of April 2010, 05.43 PM

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