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The US economy seems to be struggling to avoid stagnation, which many observers have predicted after financial institutions suffered massive losses due to the subprime mortgage crisis.
At the beginning of the crisis, I wrote about countries' common interests and technological advances in telecom which could pave the way to collaboration on solving this crisis.
However, the intensity of the crisis receded even before central banks and treasuries of developed countries used all their effective tools.
Apart from steps taken by the US, Europe and Japan to solve this problem, the role of sovereign wealth funds (SWFs) in overcoming the financial crisis, which was about to cause a global stagnation, was both important and vital.
For nearly a year, conflicting statements came out on the role of SWFs, especially those belonging to oil-producing countries. Some statements were in favour of restricting these sovereign funds' activities, while others partially blamed them for the international financial crisis.
It was strange that they all agreed upon the importance of setting a code or international guidelines for SWFs, and directing them in line with their own views and analysis of the crisis. This approach ignored the fact that sovereign funds belong to countries that have their own investment vision in line with their national strategic interests.
The US was firm about blocking some investments of sovereign funds. The UK, which is torn between its affiliation to the European Union and its US coalition, has a fluctuating stand towards them.
Germany, which has the biggest European economy, has welcomed sovereign funds, in view of their bailout role.
SWFs have pumped in more than $120 billion, and saved many US and Western financial institutions and banks from collapsing.
IMF stand
The International Monitory Fund (IMF), which has lost its attraction because of shifting international economies, led the call for setting international guidelines for sovereign funds, and regulating their activities.
The IMF has pointed out the potential positive outcomes of such regulations.
But the IMF, in reality, is trying to find itself a place in view of the growing role of the World Trade Organisation and sovereign funds in the world economy.
This is evident in that the IMF has not specified these regulations, which may vary substantially between Chinese, Russian and Indian sovereign funds, and those that belong to oil exporting countries in Asia, Africa and Europe.
The IMF's main task is to extend assistance to member countries, should there be imbalances in their monetary structures. Stepping out towards sovereign funds is not within its responsibilities.
The IMF's call for setting guidelines for sovereign funds' activities was not well-received by the fund owners themselves, while others criticised the IMF's attitude because of the difficulties they will face in trying to implement its suggestions.
Complications arise from the divergent views of countries owning sovereign funds, their views towards international developments and the size and abilities of the funds.
Everyone agrees on the growing role of SWFs and the necessity of their contribution in solving global problems. But that does not entail the IMF's plans to regulate sovereign funds, which may lead to these funds losing their strength.
SWFs have to co-ordinate their activities, while preserving their sovereignty and directing investments according to their economic programmes, which will enable them to take part in solving difficulties facing the global economy.
The writer is a UAE economic expert.
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