SWF Radar EdwinMTruman

Edwin M. Truman of the Petersen Institute discusses what he sees as four popular myths about sovereign wealth funds.

James Moran and Thomas Davis, co-chairs of the US Congressional Working Group on Sovereign Wealth Funds, have replied in a letter to the Wall Street Journal to an earlier letter from Edwin M. Truman of the Peterson Institute.

They write that, “[A] heavy-handed approach [to governing SWF investment in the United States] could result in reciprocal negative reactions, such as a shift away from the dollar to another currency, further weakening the greenback and driving up the price of oil.” And they identify the IMF as “the most appropriate forum for addressing transparency and accountability in the near term.”

Edwin M. Truman of the Petersen Institute has written a short reply to a July 18 WSJ op-ed by Douglas Rediker and Heidi Crebo-Rediker, co-directors of the Global Strategic Finance Initiative at the New America Foundation, in which they argued that SWFs should not be picked on.

In his reply he presents three reasons he sees for why SWFs indeed call for particular scrutiny.

Dow Jones reports that, Japanese Bank Minister Yoshimi Watanabe showed Thursday a supportive stance toward a government panel proposal for the creation of a sovereign wealth fund to manage the nation’s pensions, but warned that steps must be taken carefully.”

The article adds that, “A panel of the ruling Liberal Democratic Party, led by former bank minister Yuji Yamamoto, suggested the creation of a Y10 trillion sovereign wealth fund using public pension assets. … However, the group avoided calling on the government to actively manage the country’s huge foreign currency reserves, in response to opposition from other lawmakers and the finance ministry.”

As I have argued previously, categorizing a fund that invests public pension assets (which are, at least in Japan’s case, not easily described as sovereign assets) as a sovereign wealth fund raises questions about SWFs and the current debate surrounding them.

It should be noted though, that Edwin Truman of the Peterson Institute includes in his list of sovereign wealth funds (PDF) (page 8) several pension funds that are funded (at least primarily) through employee contributions. These include Japan’s Government Pension Investment Fund (GPIF), the assets of which would no doubt make up the bulk of the assets invested by the Japanese sovereign wealth fund under discussion. Truman even suggested recently that the GPIF may in fact be the world’s largest SWF.

The US House of Representatives’ Committee on Foreign Affairs has published the transcript of Edwin M. Truman’s oral testimony given today before it on the rise of sovereign wealth funds and the impact on US foreign policy and economic interests.