Wednesday 06 Oct 2021 | 19:29 | SYDNEY
Wednesday 06 Oct 2021 | 19:29 | SYDNEY

Sovereign wealth funds: Another reader response


Stephen Grenville

10 December 2007 11:18

 Reader Peter McCawley responds to my post on sovereign wealth funds in Australia:

In his article about sovereign wealth funds (SWFs), Stephen Grenville suggests that it is important for Australian policy-makers and commentators to participate in the growing international debate about SWFs.  He argues that 'we should join this debate to keep it aligned with our national interest.'

Part of the debate about Australia's national interest in this global discussion relates to the way the funds are viewed, and used, by our neighbours in nearby Asian developing countries.  After all, from one point of view, a significant proportion of the substantial resources in these funds – a bit more than $2 trillion by Grenville's estimates – would best be invested in developing countries in Asia rather than parked in US Treasury bonds. Clearly, the resources available in these funds are huge compared to the current meagre flows of international aid of around $20 billion per annum (which is 1% of $2 trillion) to Asian developing countries.

Some Asian commentators argue that because of the very great need for investible funds in developing countries in Asia, especially for infrastructure, there is 'excess liquidity' in global financial systems. According to this view, the world may be facing a 'savings glut'. But the supply of funds and use of funds are opposite sides of the same coin. It is not clear whether there is a 'savings problem' (reflected, for example, in the rapid growth of SWFs) or an 'expenditure problem' in Asian developing countries (reflected, apart from in China, in the sluggish levels of infrastructure investment in developing countries across the region).

As Stephen Grenville says, it is in Australia's national interests to develop policies on how the resources available from international SWFs might be used in Australia. But it is also in our interests to join the regional debate in Asia on the how these resources might be best used to promote economic growth in developing countries across the Asia-Pacific region.