How else can one explain the emergence of a new link between the developed and developing nations, the rather controversial sovereign wealth funds, as the new power centres of a rapidly transforming world economy At this years Davos meet, speaker after speaker dwelt upon various facetspositive and otherwiseof sovereign wealth funds, which together control a staggering $8 trillion-plus of wealth. This, some reckon, can even grow to over $20 trillion over the next 5 years and become even more powerful across the world. These funds,too, in a sense, signal the growing importance of collaborative forces in solving economic problems in the present context.
In fact, some, like Organisation for Economic Cooperation and Development (OECD) secretary-general Angel Gurria have even argued at the WEF 2008 that there is already too much protectionism in the global economy and sovereign funds should not be added to the list of targets without any real evidence of wrongdoing by them. In fact, Gurria even argued that their power was being exaggerated since, even after 10 years, they will amount to only a fraction of the power and clout wielded by pension funds.
Even WEF 2008 co-chair Kundapur Vaman Kamath, the managing director and CEO of ICICI Bank, agrees that sovereign wealth funds may not have been given enough credit for providing the much-needed funds to stabilise the global crisis at just the right time.
Indias finance minister Palaniappan Chidambaram, in fact, chose to tread cautiously on the sovereign funds issue. The finance minister made it clear that India was in favour of greater transparency by such funds, and the government was discussing this issue.
The mood of the whole forum this time was clouded by the global financial environment. One thing comes out very clearlythe uncertainty continues. Secondly, it is not the sub-prime crisis alone.
It goes beyond that, points
Clearly, given the slippery global economic scenario at the moment, systemic financial risk has also emerged as a major factor to contend with. Those like JPMorgan Chase chairman and CEO James
Dimon point out that the present crisis has shown that seemingly safe assets can
turn illiquid very quickly.
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This, in turn, could make institutions underestimate the risk levels on their balance sheets.
Financial managers were also under constant pressure to grow earnings, adding to the risk. European Central Bank president Jean-Claude Trichet suggests regulatory reforms to prevent any future crisis, underscoring Chidambarams repeated assertion at the summit that regulatory failure was a key reason for the sub-prime crisis in the US.
But, in all this, there have been calls to allow financial innovation to continue despite the fact that innovation has also been seen by many as the cause for the present crisis.
As if to reiterate that the overarching issue of this years summit, at least on the business and financial markets side, the Societe Generale scandal also broke out as the WEF Annual Meeting was on, buttressing the view that serious reform and measures had, indeed, become necessary to bring global growth back on track.
India continued to figure in the discussions, this time even more so, as it became clear that there was a rapid power shift taking place in the world economy. The resilience of Indias financial markets, the thus-far smooth growth story, and the movement taking place in some key areas like aviation infrastructure, have been the points which have made India an important factor in the equation.
And, as if to signal that, the domestic stock markets, too, signed off a turbulent week on a winning note, with the 30-share Sensex recording its highest gain ever.