Comments of Deputy Secretary of State Robert M. Kimmitt To The US Israel Executive Summit

The halls of government and the financial community are consumed with talk about sovereign wealth funds – large pools of capital managed separately from official reserves. These funds are estimated at $2.5 trillion today, growing to $12.5 trillion over the next 5 years.

All of us in the global economy have a stake in ensuring that the attention sovereign wealth funds are generating today does not feed protectionist pressures and result in ill-considered policy that undermines the global open investment environment more broadly. The Treasury Department is actively engaged on this issue.

First, the Department has taken a number of steps internally and has worked within the U.S. government to build a solid understanding of sovereign wealth funds, to form the foundation for reasoned policy-making. Within [US] Treasury, a working group of experts from across the offices of the Department is focused on real-time monitoring, understanding, and analysis of issues related to sovereign wealth funds.

The President's Working Group on Financial Markets, chaired by Secretary Henry Paulson, brings together key U.S. policymakers to discuss the implications of the growth of these funds. Treasury has also actively reached out to governments of countries with significant sovereign wealth funds and to managers of the funds, establishing ongoing and candid dialogues. And we provide semi-annual updates to Congress on our sovereign wealth fund-related work in our Report on International Financial and Exchange Rate Policies.

Second, we are engaged on a multilateral basis to address the concerns of countries that have sovereign wealth funds and the countries in which the funds invest. For example, last May (2006) Treasury hosted a G-20 workshop on commodity cycles and financial stability that included a session on sovereign wealth funds. At last October's World Bank/IMF meetings in Washington, Secretary Paulson hosted a G-7 outreach dinner with finance ministers and heads of sovereign wealth funds from eight countries – China, Korea, Kuwait, Norway, Russia, Saudi Arabia, Singapore, and the United Arab Emirates – to discuss the benefits of a comprehensive approach to this issue that could culminate in the establishment of best practices for sovereign wealth funds.

The IMF is currently working to develop best practices for sovereign wealth funds that build on its existing guidelines for foreign exchange reserve management. We envision that such a framework would include the following areas: investing commercially, not politically; competing fairly with the private sector; promoting international financial stability; and respecting host country rules.

Finally, it is not enough that a set of best practices exists for sovereign wealth funds alone. Equally important is ensuring that recipients of sovereign wealth fund investments – and foreign government-controlled investments more broadly – have a set of practices that can help guide their investment policies and reviews. The Organization for Economic Cooperation and Development (OECD) is best positioned to identify such practices and is actively engaged in this effort. Investment best practices should focus on avoiding protectionism and should adhere to well-established principles of proportionality, predictability, and accountability embraced by the OECD and its members for the treatment of foreign investment. We are hopeful that this effort will lead to the release of guidance later this year