South American SWFs Tapped

Ashby Monk

It seems that wherever SWFs are found, sponsoring governments are looking to tap these funds to finance much needed economic stimulus packages. This trend has apparently made it to South America: according to the WSJ, Brazil sees its SWF as an important mechanism to pump funding into the economy while maintaining fiscal balances, while Chile will use funds from one of its two SWFs to fund its fiscal stimulus.

This is a recurring theme as of late — SWFs as ‘insurers of last resort‘. However, not all SWFs were set up with this objective in mind. Indeed, some SWFs were set up to fill future PAYG pension gaps or share ephemeral commodity revenues across generations. This then begs the question: are some SWFs being asked to do things that run counter to their original mandates? Given the scale of the crisis, SWFs will need very robust governance systems to avoid being recruited onto the stimulus team.

One fund I know won’t be tapped for short-term fiscal stimulus: the Australian Future Fund. According to my co-author Gordon Clark, the Future Fund is beyond the reach of politicians. In his recent paper, he notes:

“There is an ever-present temptation that faces the nation-state sponsors of sovereign wealth funds: the option of spending the assets for current political advantage and legitimacy…The [Australian] government faced squarely the question of political temptation and in response instituted a model of governance that could be thought to have ‘tamed’ politics.”

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About

This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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