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Libya’s shadow on sovereign wealth funds

Thursday 13 October 2011 – by Efraim Chalamish / Project Syndicate

The Libyan crisis has exposed the problem of corporate shares owned by sovereign governments, writes Efraim Chalamish. When the US and EU decided to impose sanctions, executives were surprised how dramatically they were affected.

As Libya’s citizens rebuild their lives and economy, undoing the corruption in the Libyan Investment Authority, the sovereign wealth fund in which Muammar el-Qaddafi’s regime allegedly stashed and misused Libya’s oil wealth, is becoming a priority.

The National Transitional Council is debating who should take over Libya’s Central Bank and the LIA’s assets – an especially important decision, given that oil production is not expected to return to pre-war levels for several years.

Regardless of how the Libyan government eventually handles the LIA, all sovereign wealth funds – and their advisers and fundraisers – can learn several important lessons. Of course, no one should infer from the Libyan case that other SWFs across the board are riddled with corruption and conflicts of interest.

The LIA has always been exceptional; indeed, several indices that rank SWFs on transparency, accountability, and governance issues have traditionally given only Iran a lower ranking.

Yet, while hard cases tend to make bad law and it is too early to judge, the LIA should be a wake-up call for corporations and funds both in the Middle East and around the globe.

Related articles:

Hedge fund ethics pushed in US and Asia

Goldman lost 98% of Gaddafi investment

FSB tussles with shadow banking regs

London king of sovereign wealth funds

Citigroup sued for $835m by Norwegian central bank

To read this article in full, please visit our partner site, Project Syndicate, by clicking here.

Copyright: Project Syndicate, 2011. www.project-syndicate.org

Efraim Chalamish is founder of the Global Center for Economic Development and Security.

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