Santiago Principles: Weak and Toothless but Effective

Ashby Monk

What does the release of ADIA’s first “annual review” tell us about the impact that the Santiago Principles are having? Robin Wigglesworth of the FT has some thoughts on the issue.

“The IMF guidelines, known as the Santiago Principles , are voluntary but many funds are tentatively responding to calls for more openness – as evidenced by Adia’s report.”

First off, I need to correct Wigglesworth’s article; the Santiago Principles are not IMF guidelines. In 2008, the IMF “facilitated and coordinated” the creation of the International Working Group on Sovereign Wealth Funds, which was responsible for the Santiago Principles (also known as the Generally Accepted Principles and Practices or GAPP). The IWG was made up of 20 or so SWFs with observers from a variety of investment receiving countries and international organizations, such as the IMF, the OECD, the European Commission, and the World Bank. Anyway, it’s a common mistake. One that I myself made during a conversation with an observer to the IWG back in 2008. In that case, she stopped me mid-sentence to say that this was not an IMF-led process. Still, I’m surprised to see the FT (which is in my view a paper of record) get this confused.

Anyway, back to Wigglesworth’s point about the Santiago Principles. It’s true; over the past year we have seen ‘annual reports’ from some of the biggest and formerly most secretive SWFs in the world (e.g. ADIA, CIC, GIC, Temasek, etc.). It is undeniable that the Santiago Principles are having a noticeable impact on the transparency of these funds. This is all the more remarkable given that these principles were considered too watered down to have any real effect. In fact, one very smart SWF analyst once told me during an interview:

‘The Santiago Principles are the weakest possible guidelines that the IWG could have come up with and still claim to have done anything at all.’

The Santiago Principles may be weak and toothless, but weak principles are more easily adopted, which is why we have seen so many SWFs attempt to become GAPP-compliant. In that sense, perhaps this was the right “starting point” for SWFs’ process of opening up; baby steps.

It will now be up to the International Forum to determine if further principles and practices are necessary for these funds to sustain their international legitimacy.

6 Responses to “Santiago Principles: Weak and Toothless but Effective”

  1. 1 rien huizer March 19, 2010 at 8:02 am

    I wonder who is the beneficiary of opennness and perhaps “accountability” whatever that may mean. in the case of SWFs. Tribal families? Authoritarian states elites? Surely very few democratic audiences in residual claimant countries. As to the countries SWFs invest in, who cares?

  2. 2 Ashby Monk March 19, 2010 at 8:56 am

    Beneficiaries of transparency are the “principals” in the classic principal-agent problem. With more transparency, the principals can verify that the agents are working on their behalf…and set up incentives to facilitate this. So let’s think about who the principals and agents are in the case of SWFs. We can agree that the principal is the owner of the assets while the agents are those tasked with managing the money. But, now is where it gets tricky.

    Most of us would say that the owners (principals) are the country’s citizens and the agents are the various government agencies tasked with managing the money. Transparency is thus crucial for ensuring the agents (government) are acting in the principals best interests.

    In countries where transparency is deemed “unnecessary”, I think the principal agent problem gets mixed up. There is a sense that the principals are actually the government and the agents then become the private sector asset managers. In other words, the assets aren’t owned by the country; they are owned by the ruling elite!

    Anyway, and interesting question…

  1. 1 Guest Blog: ADIA’s “Review” Falls Short « Oxford SWF Project Trackback on March 19, 2010 at 8:43 am
  2. 2 Making LNG Work for PNG « Oxford SWF Project Trackback on April 22, 2010 at 11:01 am
  3. 3 Quick Thoughts on GIC’s Annual Report « Oxford SWF Project Trackback on October 4, 2010 at 6:55 am

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s


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.

RSS Feed


Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 370 other followers

Latest SWF News

Visitors Since August 2010

%d bloggers like this: