Protectionist barriers aimed at capital-rich sovereign wealth funds (SWFs) could backfire on the fragile global economy, top executives of major state investment firms warned here Saturday.
SWFs have the capital needed by affected economies to recover from the global crisis but governments may come under domestic pressure to impose protectionist measures, they said.
Tony Tan, deputy chairman of the Government of Singapore Investment Corp (GIC), said the biggest danger facing the world economy in coming years is protectionist sentiment, which may be stoked by high unemployment rates.
Tan, speaking at a business forum on the sidelines of an Asia-Pacific summit, said protectionism could spread from the trade arena to financial markets.
"This could manifest itself in the form of protectionist measures not only in world trade but also in financial markets and impede the free flow of funds," he said.
"If nothing else, this could derail the global economic recovery which all of us are hoping for."
Jin Liqun, from the China Investment Corporation (CIC), also cautioned against barring investments from government-owned funds.
"The sovereign wealth funds will be playing a big role in rebalancing the process but we need cooperation from the recipient countries," said Jin, CIC's chairman of the board of supervisors.
"There's nothing we can do if we are barred from doing our jobs in your countries or when hurdles are very high for us to overcome," he said.
Jin said SWFs can play a major role in restructuring economies.
"Countries need a cushion in undertaking major economic restructuring and provisional funding is of course crucial," he said, adding that the global recovery was not irreversible.
When the global crisis unfolded, SWFs emerged as a source of crucial capital, especially to Western financial firms and banks in dire need of fresh funding.
Singapore's GIC, which manages the city-state's reserves of over 100 billion US dollars, was one of the rescuers of US-based Citigroup and Swiss banking giant UBS.
Kuwait Investment Authority's (KIA) managing director Bader al-Saad told the forum that SWFs have collectively pumped 90 billion US dollars into financial institutions in the last few years.
"I think now we are in a new era of engagement," said al-Saad.
"There is a unique opportunity for the sovereign wealth funds to represent themselves as investors in the world... They are a long-term investor," he said.
Al-Saad also said perceptions that SWFs were a source of destabilisation in financial markets and that investments were driven by political agendas could not be further from the truth.
"Most of their transactions are cash transactions so there's a real economy and it shows that they are responsible investors," he said.
"They are a source of stability and last but not least, they are strategic investors... On top of that, they never make hostile takeovers."
Founded in 1982, KIA does not disclose its holdings but independent economic reports estimate the Kuwaiti assets at 200-230 billion dollars, down from around 300 billion dollars in March 2008.
KIA in late 2007 bought stakes worth billions at that time in Citigroup and Merrill Lynch, which was later acquired by Bank of America.
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