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Sovereign wealth funds in nondemocratic countries: financing entrenchment or change?

The rising prominence of sovereign wealth funds--investment funds that are owned or controlled by national governments--has stirred debate about their potential use as tools to pursue global political interests rather than economic or financial ends. Recent sanctions levied on the Libyan Investment Authority, formerly operated by the government of Muammar al-Qaddafi, underscore this question. This article argues that the governance, accountability and transparency arrangements of sovereign wealth funds reflect the quality of political institutions within the countries that own them. In contrast to funds based in democratic states, those managed by authoritarian governments are distinguished by a lack of public oversight and are instead tightly controlled by the prevailing political leadership. The link between political leadership and fund management in many authoritarian countries allows governments more flexibility in using financial assets to pursue immediate political agendas.

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As the unrest in Libya escalated in February 2011, the United Nations Security Council voted unanimously to adopt Resolution 1970. This measure--along with Resolution 1973, which closely followed it in March--condemned the Libyan government's use of force against civilians and imposed a number of international sanctions on the country, (1) In an attempt to drain financial resources from the government of Muammar al-Qaddafi, the Council requested that UN member states freeze all funds, financial assets and economic resources controlled by institutions and individuals affiliated with the regime." One of these institutions was a sovereign wealth fund (SWF) named the Libyan Investment Authority (LIA). Established by the Qaddafi government in 2006 to manage state-owned financial assets, it was mandated to build a well-diversified investment portfolio that would create a sustainable source of revenue, reduce the economy's dependence on oil and act as a savings fund for the future. (3) Since its establishment, Qaddafi and his family retained tight control over the fund, and Qaddafi's son Saif al-Islam

directed much of its investment activity. (4) The precise volume of assets controlled by the LIA remained unclear until May 2011, when Global Witness, a British nongovernmental organization, obtained LIA internal documents estimating the sum to be around $64 billion. (5)

By imposing sanctions on the LIA, the Security Council made clear its recognition of the fund's political influence. Security Council Resolution 1973 identified the LIA as "a potential source of funding for [Qaddafi's] regime" and thus ultimately capable of influencing the outcome of the civil war. This marked the first time that an SWF was specifically targeted by international sanctions. The shift in the international perception of SWFs and their role in political unrest became an unforeseen repercussion of the Libyan conflict.

The rise of SWFs during the past decade ignited intense debate about their impact on international affairs. The funds, defined as "government-controlled pools of assets designed to engage primarily in foreign investment," have recently emerged as important actors on the global financial and diplomatic stage. (6) Because SWFs are directed by governments, they represent potential instruments for states to exercise soft power in support of foreign policy objectives. They are thus recognized as capable of influencing outcomes in times of mounting geopolitical rivalry. To some observers, the growing prominence of SWFs indicates that the global financial system is becoming increasingly "neo-Westphalian" in character--i.e., dominated by the political interests of nation-states pursued by their governments. (7)

Academic analysis adds another dimension to this debate by assessing the interplay between SWF characteristics and domestic politics. A recent comparative analysis of global SWF assets has found that approximately 72 percent of assets under management of SWFs is controlled by authoritarian governments or hybrid regimes, while only 28 percent is controlled by democratic governments. (8) Roughly 30 percent of assets under management globally is controlled by autocracies in the Middle East and 17 percent by the Chinese government. Evidence also suggests that the varying performance of SWFs on indicators related to accountability, transparency and good governance is tightly correlated with the varying strength of the political climate within owner countries. (9)

The events around the LIA, unfolding against the background of mounting international interest in SWFs, raised additional questions about the political role of SWFs in nondemocratic states. Do authoritarian countries have common characteristics in the way they govern their SWFs? Are SWFs a financial buffer for authoritarian regimes against destabilizing shocks? Given the liberal nature of the global financial system, can SWFs promote good governance and accountability?

SOVEREIGN WEALTH FUNDS: A BRIEF OVERVIEW

The exact definition of the term "sovereign wealth fund" remains amorphous as it encompasses two very different concepts: political sovereignty and financial wealth. This conceptual vagueness defines the ongoing conversation about the role of SWFs in international affairs. A distinguishing feature that sets SWFs apart from other investment tools is that their principal beneficiaries are citizens of the owner countries. SWFs invest for the benefit of Emiratis, Norwegians and Russians and discriminate against noncitizens. As such, SWFs represent an antithesis to the principles of nondiscriminatory, liberal global finance.

SWFs entered the global stage not by design but by default, "as an externally imposed category in search of a definition." (10) Until 2005, SWFs were not even identified as a distinct category from other financial market actors. This changed when Andrew Rozanov coined the term "sovereign wealth fund," leading to the recognition of SWFs as a coherent, growing and potentially menacing investor group. (11) The new definition also provided the impetus for SWFs to develop a sense of their common nature, which became a foundation for the establishment of a representative body for the group, the International Working Group of Sovereign Wealth Funds, in 2008. One year later, this organization became the International Forum of Sovereign Wealth Funds, an assembly of twenty-six funds from twenty-three countries with accumulated assets of roughly $2.5 trillion. (12)

This article assesses a number of SWFs belonging to the International Forum. Their financial base is supplied by state transfers derived from a number of sources: balance-of-payments surpluses, official foreign currency operations, privatization proceeds, fiscal surpluses and receipts from commodity exports. (13) Another unifying feature of SWFs is their role as financial risk-management instruments. Though countries establish SWFs with different objectives in mind, the funds are commonly used to buffer national economies against economic and financial shocks. Savings funds protect against the risk of erosion of national resource wealth; stabilization funds ameliorate the risks of inherently volatile commodity markets; pension reserve funds mitigate future demographic pressures; and reserve investment corporations safeguard national wealth against global financial market downturns.

SWFs can also serve to assert political influence inside and outside the state. Ashby Monk, coauthor of the forthcoming book Sovereign Wealth Funds, argues that states use SWFs as tools to gain ground in international finance and to cushion the transformative forces of global capitalism. (14) Establishing and operating an SWF allows states to reclaim a degree of authority over financial markets, not only as regulators but also as active players.

As a result of the Asian crisis, when foreign lenders caused a credit crunch and sent regional currencies into a tailspin by withdrawing their money from the weakened Asian economies, many Asian governments developed policies to build up large reserves--instruments, if not guarantees, against capital-flow volatility. (15) This sentiment was expressed by Lee Kuan Yew, former prime minister and founding chairman of one of Singapore's SWFs, the Government of Singapore Investment Corporation; he said the fund "is vital to Singapore's national interest [because it] is highly exposed to the vagaries of the global economy. Our national reserves are a buffer or shock absorber for Singapore in downturns like that in 2009." (16) SWFs perform this buffering role regardless of the nature of the political regime in the owner country. Further analysis, however, allows for a more nuanced perspective on varying functions of SWFs in diverse domestic environments.

INTERNATIONAL REFERENCE POINTS

In October 2008 the International Working Group of Sovereign Wealth Funds drafted the Santiago Principles, formally known as the Generally Accepted Principles and Practices. (17) Named after the location of the working group's final drafting meeting in Santiago, Chile, the principles are a set of voluntary guidelines informing SWFs on how to establish transparent and sound governance structures, ensure adequate operational controls and set up risk-management and accountability mechanisms. (18) By committing themselves to these principles, SWFs sought to educate the public about their role in global finance, to quell concerns over the political nature of their investments and to help maintain a stable global financial system and the free flow of capital.

The Santiago Principles proved to be valuable in two additional ways. First, they became an important reference point for the international community to hold SWFs accountable to their own standards. Second, the principles provided an analytical instrument for a more systematic understanding of the funds' legal frameworks, objectives and governance structures.

Today, however, implementation of the Santiago Principles remains fragmented. In April 2010, the compliance rate of SWFs with the code was between 50 and 60 percent. (19) Furthermore, commitment to the principles was uneven among signatories; only a small group of SWFs demonstrated full commitment, a large group of funds was partially compliant and a substantial percentage demonstrated very limited commitment, if any.

A partial explanation for this unevenness is the fact that SWFs owned by democratic countries demonstrate a much higher rate of compliance than those owned by authoritarian governments. (20) In other words, SWFs in authoritarian states are less likely to establish robust transparency arrangements than those in democratic states. This initial finding suggests that there is value in further examining the differences among SWFs based in different political systems.

A useful reference point in comparative assessment is the Democracy Index published by the Economist Intelligence Unit. This cross-country analysis ranks countries on a range of criteria: electoral processes and pluralism, the functioning of government, political participation, political culture and respect for civil liberties. (21) Based on these criteria, the highest-ranking states are categorized as full democracies, followed by flawed democracies, hybrid regimes and authoritarian regimes.

A review of the 2010 index reveals that nearly half of the SWFs that formally committed to the Santiago Principles are owned by democracies, either full or flawed. Among them is the SWF owned by Norway--the highest-ranked country on the index--as well as those based in Australia, Chile, Ireland, New Zealand and South Korea. (22) Four funds are based in countries classified as hybrid regimes--two each in Singapore and Russia. The other half of funds that agreed to the Santiago Principles are owned by authoritarian governments. Among them are the investment authorities of Libya, Kuwait, Qatar and Abu Dhabi, as well as the State Oil Fund of the Republic of Azerbaijan and the China Investment Corporation.

For both democratic and authoritarian governments, observing a country's political institutions provides an indication of SWF characteristics. In particular, it helps to make inferences about the fund's arrangements with regard to transparency mechanisms. Such mechanisms allow the citizenry to exercise public oversight--an ability nondemocratic governments are often reluctant to facilitate. Second, political climate appears to influence the accountability arrangements established by SWFs, with strong variation between democratic and nondemocratic countries in how much oversight governments exercise over the funds. Third, the nature of government representation in SWF leadership and supervisory bodies is different between democratic and authoritarian countries.

In most democracies, managers of SWFs are held accountable to national parliaments and government officials--in most cases, a minister of finance. SWF leadership bodies consist of experienced professionals covering the full range of SWF functions. As one example, managers of the Superannuation Fund in New Zealand, known as the "guardians," are chosen based on their training and expertise in the management of financial investments. They are accountable to the national parliament, through the minister of finance, for the performance of the fund. (23) Any directive given by the minister must be discussed in the parliament.

In Australia, members of the Board of Guardians of the Future Fund are selected based on their experience in the private and financial sectors and are appointed by the treasurer and the minister of finance. They must submit annual reports to the minister of finance, who in turn submits them to each house of parliament, the House of Representatives and the Senate. (24) In Norway, the minister of finance must likewise deliver annual reports of the government pension fund to the Storting, the country's parliament. Members of the fund's executive board are appointed based on professional merit, and the central bank executes the fund's operational management. (25)

Such governance arrangements not only ensure that there is a considerable distance between political principals and operational agents, but they also give SWFs wider legitimacy in the eyes of domestic constituencies. As such, governance arrangements of SWFs in democracies reflect a deeper appreciation for transparency and popular participation. This becomes all the more obvious if one contrasts the observations above with the structure and governance of SWFs owned by countries on the other end of the political spectrum--those that are classified by the Economist Intelligence Unit Democracy Index as autocratic or hybrid regimes. The discussion below focuses on SWFs based in the Arab world, China, Azerbaijan, Singapore and Russia.

Middle East and North Africa

Some of the oldest and largest SWFs are based in the Middle East and North Africa. Many Arab SWFs have served key roles in state building and have contributed to the shaping of national identities and institutions. For instance, the Kuwait Investment Authority, whose roots go back to the 1950s when Kuwait was still a British protectorate, was instrumental in rebuilding Kuwait's economy after the Gulf War in 1991. The Abu Dhabi Investment Authority was established in 1976, five years after Abu Dhabi secured independence and following the oil boom of the early 1970s. The launch of the Qatar Investment Authority in 2005 became an important symbol of foreign policy autonomy for Qatar. Maintaining such autonomy despite being surrounded by veritable regional powers--Saudi Arabia, Iran and Iraq--increased international attention on the country. The LIA was similarly used by the Qaddafi regime as a means to bolster international alliances.

An important element that distinguishes most Middle Eastern SWFs from those outside the region is the heavy representation of ruling families in the decision-making bodies of the funds--a characteristic that reflects the ruling families' overall tendency to tightly control the reins of the state. This holds particularly true for Abu Dhabi and Qatar. In both countries, royal family members occupy several seats on SWF supervisory boards and also hold leadership positions in operational management. (26)

Such representation leads commentators to note that "the lack of clear boundaries between personal sovereign wealth and public sovereign wealth in the Gulf muddies the neat picture of Gulf SWFs as simple portfolio investment vehicles." (27) Although Abu Dhabi Investment Authority asserts that it "carries out its investment programme independently and without reference to the Government of Abu Dhabi or other entities that also invest funds on the Government's behalf," the lines separating the public and private domains remain rather fluid--in Abu Dhabi as well as across the Arab world. (28)

In Kuwait, the linkage between the ruling family and the investment authority is somewhat less pronounced. Core positions in the Kuwait Investment Authority are mostly filled by government officials appointed by the emir rather than by royal family members. The fund maintains a level of opacity comparable to its regional peers. Yet it is also required by law to present a detailed annual report to the Council of Ministers and must report annually to the National Assembly on all its funds. (29) In this regard, it is notable that the Kuwaiti parliament is the strongest and most outspoken among Gulf-region monarchies, and it has played a key role in the government's response to the financial crisis, as well as to the escalating debt problems plaguing the banking sector.

For the LIA, close links to the ruling family determined the fund's structure and investment behavior. Sail al-Islam used the fund as an instrument to forge political ties between Libya and Europe, particularly Italy, where it held interests in financial institutions and industry. (30) At the same time, the LIA's management did not have any broader public accountability obligations. The fund was also a tool underpinning Qaddafi's ambitions to play a strong role in African politics. The LIA incorporated funds dedicated to African development, making substantial direct investments in African tourism, real estate and telecommunications.

China

The China Investment Corporation (CIC) was established in 2007, and by late 2010 its total assets amounted to just over $400 billion. (31) The fund's declared mission--to pursue long-term investment objectives on behalf of its shareholder, the State Council--suggests an exclusively financial orientation with sufficient room to maneuver for operational management. Meanwhile, the composition of its leadership bodies suggests that the CIC is closely interwoven with other government agencies to pursue China's broader development objectives.

The fund's board of directors includes representatives from the National Development and Reform Commission, the Ministry of Finance, the Ministry of Commerce, the People's Bank of China and the State Administration for Foreign Exchange. (32) Some experts argue that these arrangements facilitate the direct and indirect influence of the central government over CIC decision making. (33)

A different view suggests that rather than reflecting government control, the composition of CIC supervisory bodies is influenced by the fragmented nature of China's political establishment; as a result of bureaucratic infighting over the management of financial resources, oversight responsibility fell to the GIG. (34) This scenario left CIC management with some leeway in meeting external stakeholders' demands for stronger transparency. Such a perspective also explains why China's investment corporation maintains an uncharacteristically transparent public reporting policy, making it one of the most transparent funds among those owned by authoritarian states. (35)

Azerbaijan

The State Oil Fund of the Republic of Azerbaijan (SOFAZ) was established in 1999 to manage the expected windfall of revenues from high commodity prices and direct it toward economic development. The fund's asset growth has been nothing less than impressive, from half a billion dollars to nearly $23 billion over a period of eleven years. (36)

The governance and investment policies of SOFAZ are largely determined by presidential decrees, and meaningful parliamentary controls are lacking. The fund is largely accountable to the president; its operational framework is shaped by presidential decrees and resolutions in equal measure with the legal framework contained in the constitution and the fund's statute. The president has the authority to approve the fund's allocation of assets, appoint or dismiss its executive director, approve the budget and select its supervisory board and auditor. (37)

Similar to the CIC, however, the Azerbaijani fund is more transparent than the development of Azerbaijan's political institutions would imply. It issues 0detailed financial information about its performance, investment strategies and asset allocation and provides information about managerial arrangements. It also maintains a close working relationship with the Extractive Industry Transparency Initiative, an institution mandated to improve transparency in the oil, gas and mining sectors.

Singapore

The Economist Intelligence Unit Democracy Index defines Singapore as a hybrid regime with a strong and efficient government but low levels of political participation. (38) Its reserves, composed of physical and financial assets, have been described by the government as "a key defence for Singapore in times of crisis [and] a valuable stream of income for the Government Budget." (39) The task of managing the reserves falls on two core institutions: the government of Singapore Investment Corporation (GIC) and Temasek Holdings.

With regards to the overall transparency of its SWFs, Singapore's policy can be described as strategic opacity. Though the government has since improved the transparency of Temasek Holdings, it refuses to reveal the value of GIC assets. Providing this information, the government argues, would amount to disclosing the size of Singapore's financial reserves, undermine their effectiveness as a defense against crises and expose the country to speculative currency attacks. (40)

A characteristic that sets Singapore's wealth management approach apart is the role of the president. Its constitution puts substantial emphasis on the protection of "past reserves," assets that were accumulated during previous terms of government. A special role in their protection is ascribed to the president, who must approve budgets on an annual basis, and the fund chairman and chief executive officer, who must declare whether the budget is likely to draw on past reserves. The board must also seek presidential approval for every supplementary budget item of its fiscal year, and the president may reject requests if they are likely to draw on past reserves. (41)

Though the president is not engaged in managing the funds on a daily basis, he wields considerable power during times of political and economic stress. During such periods, controls over the risk-management functions of the funds are relegated to the president without any form of parliamentary control.

Russia

Like Singapore, Russia is ranked as a hybrid regime by the Economist Intelligence Unit. It owns two SWFs, the Reserve Fund and the National Wealth Fund. The former performs a stabilizing function, financing expenses of the federal budget and maintaining its balance during times of lower oil and gas revenues, while the latter supports the pension system over the long term. In line with its functions, assets of the Reserve Fund declined from roughly $140 billion in September 2008 to roughly $26 billion in August 2011 in response to the financial crisis and capital market volatility. (42) Meanwhile, the National Wealth Fund continued to accumulate financial assets at a modest pace. (43) By late 2011, the government was in the final stages of launching a third fund designed to co-invest in the Russian economy with external financiers. (44)

Both the Reserve Fund and the National Wealth Fund are managed by the Ministry of Finance and are part of the federal budget. The Russian government determined both funds' investment policies, and the Bank of Russia may be tasked to function as their operational manager. These mechanisms give the government tight control over the two funds, allowing for little parliamentary oversight.

OUTLOOK: GLOBAL INVESTMENT SPACE AND EMERGING LINES OF CONFLICT

These case studies suggest that the limited value authoritarian states place on transparency, accountability and governance arrangements influences the governance frameworks of SWFs in those countries. The role of parliaments or other forms of institutionalized public supervision is rather limited, if it exists at all. These funds are characterized by weaker transparency and accountability mechanisms, with the notable exceptions of China and Azerbaijan. SWFs from authoritarian countries are predominantly vertically organized, linking their management with ruling families (as in the Arab world), state councils (as in China) or bureaucratic governments (as in Singapore). On the other hand, SWFs owned by democratic states employ higher transparency standards that widen the horizontal dissemination of information and enforce broader stakeholder rights.

These observations lend support to the argument that authoritarian governments establish and operate SWFs as an additional means for centralizing and legitimizing their power. Distinctive governance characteristics of SWFs in nondemocratic states often allow governments to allocate resources in ways that engage internal political forces considered essential for regime survival. To ensure unrestricted access to financial resources, authoritarian governments maintain close ties to the operational management of the funds, avoiding check-and-balance systems that would obstruct such preferential relationships. As a consequence, they place little value on broader public or parliamentary discourse regarding the funds' nature, purpose and financial orientation.

In contrast, governance arrangements of democracy-owned SWFs enforce considerable distance between their operational management and top government executives. The oversight function of the parliament is much more pronounced, and democratically elected government representatives are commonly present in SWF governing bodies. Transparency arrangements invite the general public to partake in a broader discourse about the fund's purpose and strategy. Public reporting also ensures that funds are used in line with the officially stated objectives.

At the time of this writing, a debate has begun over the potential role of the LIA in the process of post-revolutionary state building. Possible scenarios include a radical depletion of the fund to stabilize the domestic economy and propel political transformation; a conversion of financial assets abroad into investments in domestic infrastructure; and building a long-term savings fund to store the existing assets. (45) Under each scenario, the LIA faces drastic changes.

A critical aspect of the LIA's future role is its investment mandate and the resulting investment strategy. Equally as important, provided that the LIA continues to administer substantial wealth on behalf of the Libyan people, it stands to become part of the broader overhaul of Libyan political institutions. As of October 2011, the Libyan National Transitional Council has emerged as the legitimate representative body after a profound power reconfiguration. (46) It is in a position to begin laying out the governance, accountability and transparency arrangements of the fund. It is reasonable to assume that the Transitional Council's imminent policy choices with regard to the LIA will indicate its broader post-revolution political orientation.

Key elements that will allow the LIA governance architecture to meet international standards are straightforward. Enforcing distance between government leaders and the operational management of the fund would help protect LIA's assets from short-sighted and politically motivated intervention. Transparent funding and withdrawal arrangements would ensure public oversight over cash flows. Annual reporting mechanisms--including obligatory disclosure of the value of the LIA's assets, as well as of its annual and long-term performance, financial benchmarks and asset allocation--would make fund management accountable to the broader community of political stakeholders. Enforcing such governance arrangements for the LIA may give the new government an extra boost on the course to democracy. A failure to do so may be a harbinger of backsliding into the repressive ways of the past.

There is no shortage of examples from other states that can inform the LIA's reform, and the Santiago Principles provide an additional, rich source of inspiration. However, it is important to recognize that there is still no universally accepted agreement on how an SWF should be run. Around the world, governance arrangements of SWFs differ according to the political cultures and economic needs of owner countries. Attempts to imitate other funds will most likely fail if the structure of the LIA does not reflect the country's evolving political reality and norms.

The LIA represents an extreme example of an SWF restructuring its governance architecture as a result of a regime change, but one does not need to observe a revolution to argue that SWFs are capable of adapting to changes in overall institutional settings. In authoritarian countries, as elsewhere, SWF governance arrangements are not static constructs. Rather, they are responsive to the evolution of the international and domestic environment and are subject to policy shifts. It is not altogether unrealistic to suppose that SWFs, when exposed to international standards of transparency and good governance, can create incentives toward domestic political reforms.

It is perhaps premature to frame the growing prominence of SWFs in the global arena as a systemic risk. Their rise allows ample opportunity for international governance standards to resonate with the domestic impetus for democratic rule. The future of the LIA's evolution will be a critical test to this proposition.

NOTES

(1) United Nations Security Council (SC), Resolution 1970, 26 February 2011, http://daccessdds-ny.un.org/doc/UNDOC/GEN/N11/245/58/PDF/ N1124558.pdf?OpenElement; SC, Resolution 1973, 17 March 2011, http://daccess-dds-ny.un.org/doc/UNDOC/GEN/N11/268/39/PDF/N1126839. pdf?OpenElement.

(2) The text of Resolution 1973 reads: "The Security Council ... decides that ... all States shall ensure that any funds, financial assets or economic resources are prevented from being made available by their nationals or by any individuals or entities within their territories, to or for the benefit of the Libyan authorities, as designated by the Committee, or individuals or entities acting on their behalf or at their direction, or entities owned or controlled by them." An annex to the resolution identifies seven people closely connected to the Qaddafi regime and five financial institutions, including the Libyan Investment Authority, the Libyan Central Bank and the National Oil Corporation.

(3) "Libya Investment Authority," International Forum of Sovereign Wealth Funds, http://www.ifswf. org/members-info.htm.

(4) Hugh Miles, "How Libya's Sail al-Islam Gaddafi Seduced the West," BBC News, 4 March 201 I; "New Leaked Document Reveals HSBC Held $1.4bn of Libyan Funds," Global Witness, 1 June 2011, http://www.globalwitness.org/library/new-leaked-document-reveals-hsbc- held-14bn-libyan-funds.

(5) Ibid. The leaked documents are two management information reports of the LIA from 30 June 2010 and 30 September 2010.

(6) Sven Behrendt, "An Update on Arab Sovereign Wealth Funds," in Managing Arab Sovereign Wealth in Turbulent Times--and Beyond, ed. Sven Behrendt and Bassma Kodmani (Washington, DC: Carnegie Endowment for International Peace, 2009), 3.

(7) Brad Setser, "A Neo-Westphalian International Financial System?" Journal of International Affairs 62, no. 1 (2008): 17.

(8) Victoria Clare Barbary and Bernardo Bortolotti, "Taming Leviathan: Foreign Investment, Political Risk and a Regulatory Framework for Sovereign Wealth Funds," Research Paper No. 2011-93 (Milan: Paolo Baffi Centre, July 2011), 3.

(9) Sven Behrendt, "Sovereign Wealth Funds and the Santiago Principles: Where do They Stand?" Carnegie Paper No. 22 (Washington, DC: Carnegie Endowment for International Peace, May 2010), http://carnegieendowment.org/files/santiago_ principles.pdf.

(10) Anna Gelpern, "Sovereignty, Accountability, and the Wealth Fund Governance Conundrum," Asian Journal of International Law 1, no. 2 (2011): 289.

(11) Andrew Rozanov, "Who Holds the Wealth of Nations?" Central Banking Journal 15, no. 4 (May 2005): 52-57.

(12) Author's calculation.

(13) Udaibir S. Das et al., "Setting up a Sovereign Wealth Fund: Some Policy and Operational Considerations," IMF Working Paper 09/179 (Washington, DC: International Monetary Fund, August 2009), http://www.imf.org/external/pubs/ft/wp/2009/wp09179.pdf.

(14) Ashby H. B. Monk, "Sovereignty in the Era of Global Capitalism: The Rise of Sovereign Wealth Funds and the Power of Finance," Environment and Planning A 43 (2011): 1813-32.

(15) Donghyun Park and Andrew Rozanov, "Asia's Sovereign Wealth Funds and Reform of the Global Reserve System," in The Future Global Reserve System--An Asian Perspective, ed. Jeffrey D. Sachs et al. (Manila: Asian Development Bank, June 2010), http://aric.adb.org/grs/papers/Park.pdf.

(16) Lee Kuan Yew, "Address at the GIC 30th Anniversary Dinner" (speech, Shangri-La Hotel, Singapore, 9 May 2011).

(17) "Sovereign Wealth Funds, Generally Accepted Principles and Practices: 'Santiago Principles'," International Working Group on Sovereign Wealth Funds, October 2008, http://www.iwg-swf.org/ pubs/eng/santiagoprinciples.pdf.

(18) For an overview of the evolution of the Santiago Principles and the International Forum of Sovereign Wealth Funds, see Sven Behrendt, "The Santiago Principles: A Voluntary Code for Sovereign Wealth Funds," in Sovereign Asset Management for a Post-Crisis World, ed. Donghyun Park (London: Central Banking Publications, 2011).

(19) Ibid., 43.

(20) Ibid., 42.

(21) Democracy Index 2010: Democracy in Retreat (London: Economist Intelligence Unit, 2010), 3.

(22) These SWFs include the Government Pension Fund Global of Norway, New Zealand's Superannuation Fund, Australia's Future Fund, Ireland's National Pension Reserve Fund, the Korea Investment Corporation and Chile's Pension Reserve and Social and Economic Stabilization Fund.

(23) For more details, see "The Controls on How the Guardians Manage the Fund," New Zealand Superannuation Fund, http://www.nzsuperfund.co.nz/index.asp?pageID=2145879271.

(24) For more details, see "Governance," Future Fund, http://www.futurefund.gov.au/about the future_fund/governance.

(25) For more details, see "Organisation," Norges Bank, http://www.norges-bank.no/en/about/organisation.

(26) For more details, see "Board of Directors," Abu Dhabi Investment Authority, http://www.adia.ae/En/People/Board_Of_Directors.aspx; "FAQs," Qatar Investment Authority, http://www.qia.qa/faq.html.

(27) Rachel Ziemba and Anton Malkin, "The GCC's International Investment Dynamics: The Role of Sovereign Wealth Funds," in Shifting Geo-Economic Power of the Gulf: Oil, Finance and Institutions, ed. Matteo Legrenzi and Bessma Momani (London: Ashgate, 2011), 111.

(28) "Relationship with Government," Abu Dhabi Investment Authority, http://www.adia.ae/En/ Governance/Abudhabi_Government.aspx.

(29) "Transparency and Disclosure of Information," Kuwait Investment Authority, http://www.kia. gov.kw/En/About_KIA/Tansparency/Pages/default.aspx.

(30) Tom Bawden, "Libya's oil money has made it major world shareholder," Guardian, 21 February 2011.

(31) Annual Report 2010 (Beijing: China Investment Corporation, 2010), 50.

(32) Ibid., 16-21.

(33) Gordon Clark and Ashby Monk argue that the central government is able to maintain control of the CIC because the Communist Party has a major say in the career prospects of senior officials and because of the overarching importance it attributes to economic growth. Gordon L. Clark and Ashby H. B. Monk, "Nation-State Legitimacy, Trade, and the China Investment Corporation" (working paper, University of Oxford, Oxford, UK, 31 March 2010).

(34) Victor Shih, "Tools of Survival: Sovereign Wealth Funds in Singapore and China," Geopolitics 14, no. 2 (2009): 328-44.

(35) Behrendt, "SWFs and Santiago Principles," 15.

(36) Annual Report 2010 (Baku: State Oil Fund of the Republic of Azerbaijan, 2011), 9.

(37) "Statute of the State Oil Fund of the Republic of Azerbaijan" [in Azerbaijani], Decree No. 434 of the president of Azerbaijan, 29 December 2000; "Rules in the Preparation and Execution of the Annual Program of Revenues and Expenditures (Budget) of the State Oil Fund of the Republic of Azerbaijan" [in Azerbaijani], Decree No. 579 of the president of Azerbaijan, 12 September 2001.

(38) Democracy Index 2010, 5.

(39) "Our Nation's Reserves," Ministry of Finance of Singapore, http://app.mof.gov.sg/reserves.aspx.

(40) This argument was made by Lim Bee Khim, director of corporate communications of the Ministry of Finance, in a letter posted on the ministry's website. See Lim Bee Khim, "GIC Manages Its Investment Portfolio for the Long Term," Ministry of Finance of Singapore, 23 September 2011, http://app.mof.gov.sg/newsroom_details.aspx?type=forum&cmpar_year=2011&.news_ sid=20110923697233305980.

(41) Const. of the Republic of Singapore, art. 22(a)-22(c).

(42) "Aggregate Amount of the Reserve Fund," Ministry of Finance of the Russian Federation, I September 2010, http://www1.minfin.ru/en/reservefund/statistics/amount/index.php?id4=5817.

(43) "Aggregate Amount of the National Wealth Fund," Ministry of Finance of the Russian Federation, 1 September 2010, http://www1.minfin.ru/en/nationalwealthfund/statistics/amount/ index.php?id4=5830.

(44) The new initiative, Russian Direct Investment Fund (RDIF), foresees a $10 billion initial investment from the Kremlin. Douglas Busvine, "Russia's $10 Billion Fund Staffed Up, Ready for Deals," Reuters, 15 September 2011.

(45) Sven Behrendt and Rachel Ziemba, "Libyan Investment Authority: What's Next?" EconoMonitor, 26 August 2011, http://www.economonitor.com/blog/2011/08/libyan-investment-authority-whats- next/#idc-container.

(46) William Wan and William Booth, "United States Recognizes Libyan Rebels as Legitimate Government," Washington Post, 15 July 2011.

Sven Behrendt is managing director of GeoEconomica, a political risk management firm providing analysis at the intersection of global economics and geopolitics.
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Title Annotation:Inside the Authoritarian State
Author:Behrendt, Sven
Publication:Journal of International Affairs
Article Type:Report
Geographic Code:9SING
Date:Sep 22, 2011
Words:5783
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