Nov 21, 2007 10:56 am


Capitalism as system based on private ownership of the economy may be slowly being replaced by a global system based state ownership of the economy. No, I am not talking about states merely controlling their own economic systems but those of other countries. Sovereign Wealth Funds are all the rage. Russia and China are reveling in them while Japan and India are considering them. For Sovereign wealth funds: Power magnifies as petrodollar gains ground and if you cannot beat them, you may as well join them.

To reassure nervous Nellies, the IMF suggested the funds practice VOLUNTARY TRANSPARENCY. In other words, the IMF suggested that they let us know what they are doing with their money. In the meantime we have to rely on guesses of experts with less than sterling records.

Not on your life, is their response. It is unfair to ask us such questions and if you do not stop it. We will not invest in your country! Now there! And if this is not scary enough, try adding to it a weak dollar and Western businessmen anxious to sell and you will end up with the following:

He told the Financial Times on Monday that the more sophisticated investors were likely to look beyond bank stocks, buying distressed debt instruments either directly or through hedge funds.

His comments were made as some international bankers have recently been courting investors in the Gulf, a region seeing an unprecedented oil-fueled boom, in hopes of finding new buyers for distressed assets created by the credit turmoil.

But Mr bin Sulaiman also warned that any attempt to suck new Gulf buyers into US markets could be damaged by its attitude towards sovereign wealth funds, which have faced a political backlash driven by concerns over transparency and fears that the government funds could turn their financial power into political leverage.

This backlash, he said, could encourage regional houses to turn their backs on western markets and seek more buying opportunities in Asia, where they face little or no such backlash.

“If you need foreign direct investment, you need to be welcoming, not scaring [investors] off,” he said. “Talk about sovereign wealth funds is creating a lot of sensitivity, even for private investors. They are already looking elsewhere to hedge their positions.”

The International Monetary Fund has been recommending voluntary transparency from sovereign wealth funds to pre-empt compulsory disclosure that could be imposed by some western states. Mr bin Sulaiman said some of the regional funds made such big investments that disclosures would have an impact on markets and put these groups at a disadvantage.

His comments echo the position of other government-backed investors in the region, who cherish the secrecy of their investments and have balked at suggestions they should become more transparent. The DIFC, which has established itself as a regional financial centre, is also part of the new breed of Gulf investors that have pursued aggressive acquisitions abroad.

DIFC Investment, the centre’s investment arm, has acquired stakes in pan-European exchanges company Euro­next and in Deutsche Bank. Borse Dubai, a government entity partly owned by DIFC, has tied with the US Nasdaq to acquire OMX, the Nordic exchange, and to buy a stake in the London Stock Exchange.

Mr bin Sulaiman confirmed that Borse Dubai’s next move was likely to be an investment into an Asian exchange. “It’s only logical,” he said. “It’s a matter of when rather than whether we will [make an acquisition in Asia].”

Nor are these threats falling on deaf ears. I have recently heard Rush Limbaugh tell his audience that it was his feeling that the reason Dubai bought Airbus instead of Boeing is because they resent the American refusal to let them take over the running of our ports!

The FT/DIFC World Financial Centres Summit taking place in Dubai is certainly worth following. We are in the midst of a complicated GO (American know it as Othello) game whose importance cannot be overstated.

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