A top IMF official said Wednesday that a tentative agreement with major sovereign wealth funds would "help secure the global environment for effective and beneficial cross-border investing."

The International Monetary Fund's deputy chief John Lipsky praised a best-practices set of guidelines agreed upon in principle by representatives of SWFs at a two-day meeting in the Chilean capital that ended Tuesday.

Lipsky said the IMF-facilitated International Working Group was finalizing an "important document" which would be presented to the IMF's International Monetary and Financial Committee in October.

The plan "represents a valuable solution that ... should help secure the global environment for effective and beneficial cross-border investing, while ensuring that the SWFs will continue to play their meaningful and constructive economic and financial role for the foreseeable future," he said.

His comments came after the IMF and major SWFs reached the preliminary agreement on a "voluntary framework" on governance and accountability arrangements, as well as the "appropriate investment practices by SWFs."

The huge growth in sovereign wealth funds in the past decade has raised concerns about whether their commercial investments hide political motives, Lipsky acknowledged.

"Worries have been expressed that SWF investments could affect national security, or that SWF investments could be based on noncommercial motives," the IMF deputy managing director said.

"Although it is clear that these concerns have little or no basis in the way SWFs have operated up to now, it is important to avoid negative perceptions or run the risk of a protectionist backlash."

"Such outcomes would be damaging for all parties concerned," he added.
Lipsky pointed out that according to market estimates, SWFs manage assets currently worth between two and three trillion dollars, far outstripping hedge funds' estimated 1.9 trillion dollars in assets.

SWF assets are projected to exceed the stock of global foreign exchange reserves "in the not so distant future" and to top seven to 11 trillion dollars by 2013, he said. AFP