9 - The Politics of Sovereign Wealth Funds

Summary

INTRODUCTION

The U.S subprime financial crisis of mid-2007 and a further deceleration of the U.S. economy, largely driven by the housing market correction, created unprecedented opportunities for several sovereign wealth funds (SWFs) to acquire, at distressed prices, portfolio investments and assets in North America and Western Europe. This chapter focuses upon the politicization of recent investments by SWFs from “non-Western” countries such as the acquisitions of the Chrysler Building and portfolio stake holdings in Barclays, Credit Suisse, Citigroup, Merrill Lynch, Morgan Stanley, and UBS AG. In Section 2, the chapter takes note of the initial hostile reactions of certain Western countries, placing them in historical context. SWF investments have been perceived as potential threats to the national security and economic interests of Western recipient states. Such politically driven perceptions are reminiscent of the arguments raised in earlier times by developing countries in the discourse with capital-exporting, developed countries concerning the New International Economic Order. The political rhetoric of “national security” and “sovereignty” has been raised as a shield or sword, depending on the disparate national interests of states at the relevant times. The use of such archaic and elusive rhetoric obfuscates real issues by accepting and treating national security and interests as a paramount concern. This chapter therefore proposes an alternative, holistic perspective for the analysis of any SWF investment.