Sovereign Wealth Funds Issue “Baku Statement” Reaffirming the Need for Maintaining Open Investment Environment10.09.2009
The International Forum of Sovereign Wealth Funds (IFSWF) held its inaugural meeting in Baku, Azerbaijan on October 8-9, 2009. The meeting was hosted by the State Oil Fund of the Republic Azerbaijan (SOFAZ) and the Government of the Republic of Azerbaijan. Senior officials from 20 SWFs attended the Baku meeting. The meeting was also attended by senior level representatives from five recipient countries, the European Commission, the International Monetary Fund, the OECD, the World Bank, and from a select private sector group. In welcoming the IFSWF, H.E. Samir Sharifov, Minister of Finance of Azerbaijan, emphasized that the IFSWF has an enormous potential to gain significance as an important international platform for continued constructive dialogue with recipient countries, the private sector, and the relevant multilateral organizations.
The IFSWF members discussed their common interest in the context of the current financial crisis, and exchanged views on the investment outlook for sovereign investors. The IFSWF also reviewed progress made by its various sub-committees and outlined a work agenda going forward. Particular emphasis was placed on the implications of macroeconomic policies for investment decisions, changes and prospects in the investment regulatory regime of recipient countries, domestic policy role of SWFs during the crisis, and challenges and opportunities for the provision of long-term capital.
Lessons from the Global Financial Crisis
Drawing on lessons from the financial crisis, meeting participants cautioned against over reliance on models in the investment process, and emphasized the importance of truly understanding SWF objectives, investment horizons, and risks—especially liquidity risk—so as to protect the interests of the SWF owners and community in general. Some IFSWF members felt the need to put more effort in communicating and educating domestic stakeholders about their operations and risks.
Sir Andrew Crockett, President of JPMorgan Chase International and former General Manager of the BIS, and José Viñals, Financial Counselor and Director of the Monetary and Capital Markets Department at the IMF, addressed the IFSWF on the evolving conditions of the global financial system. Sir Andrew emphasized that as economic recovery takes place, sovereign investors will face both opportunities and challenges. The IFSWF, established by the Kuwait Declaration, provides a forum for understanding the risks and discussing areas of common interests. Mr. Viñals stressed that while global financial stability has improved as a result of unprecedented policy actions at national and international level, resolving banking system problems and spearheading needed regulatory reforms will be important to avoid reigniting systemic risks.
IFSWF welcomed the multilateral efforts and commitment to keep recipient countries borders open for cross border capital flows. In this regard, the IFSWF welcomed the work of the OECD and others. The IFSWF also acknowledged the need for better targeted and good quality financial regulation, but urged that in undertaking global reform efforts, it needs to be ensured that the risk of financial protectionism at the national level is explicitly addressed. It urged that actual implementation of individual recipient country legislation be done in the same spirit of transparency and nondiscrimination. As long-term investors, IFSWF members also sought reassurance that recipient countries promote good corporate governance principles.
The IFSWF confirmed progress in application of the Santiago Principles. Several members had initiated steps to move forward with the implementation process. The global financial crisis has made the domestic public and policymakers more vigilant about the use and investment of public money, and the Santiago Principles are serving as a useful guiding tool. Going forward, the IFSWF will continue to discuss the application of the Santiago Principles.
At the conclusion of the meeting the forum adopted a " Baku Statement" on its commitment to continue to contribute to a stable global financial system and maintain free flow of capital and investment. The statement adopted read: " We welcome the international efforts aimed at maintaining supportive fiscal, monetary, and financial sector policies until a durable recovery is secured; completion of the financial sector and regulatory reforms without delay, and avoidance of protectionism in all its forms. To support this global commitment and to live up to its objectives, the IFSWF agrees to: (i) encourage recipient countries to continue making their investment regimes more transparent and nondiscriminatory, avoid protectionism, and foster a constructive and mutually beneficial investment environment; (ii) continue to assess the application of the Santiago Principles; (iii) continue to place emphasis on adequate operational controls, risk management, and accountability; and (iv) encourage capacity building among IFSWF members."
The next meeting of the IFSWF will be held in May 2010 in Sydney, Australia. It will be hosted by the Australian Future Fund.
The International Forum of Sovereign Wealth Funds (IFSWF) was established by the International Working Group of Sovereign Wealth Funds (IWG), which met in Kuwait City on April 5-6, 2009 (see "Kuwait Declaration"). IFSWF is a voluntary group of Sovereign Wealth Funds (SWFs), which meets, exchanges views on issues of common interest, and facilitates an understanding of the Santiago Principles and SWF activities.