Official U.S. Warms to Asian, Middle Eastern Government-Linked Funds

By Gee, John | Washington Report on Middle East Affairs, March 2008 | Go to article overview
Save to active project

Official U.S. Warms to Asian, Middle Eastern Government-Linked Funds

Gee, John, Washington Report on Middle East Affairs

THE SUB-PRIME mortgage debacle has forced U.S. political leaders to revise their attitudes toward what are known as sovereign wealth funds, with likely consequences for its future relationship with cash-rich Middle Eastern and Asian states.

Washington generally has been very wary of any foreign government gaining a potential position of political influence within U.S. borders (with the notable exception of Israel's, whose politicians come and go and interact with sympathetic groups with ease). This wariness has extended to investment by institutions that are controlled or entirely owned by foreign governments.

Not only political leaders, but also many American citizens, worry that such sovereign wealth funds could be used as instruments for acquiring influence over U.S. policymaking, gaining control over national assets, and subordinating the legitimate commercial role of companies in which they gain a stake to their owner state's political interests.

American perspectives on sovereign wealth funds also have been shaped by the status historically given to private enterprise. U.S. overseas investment has been undertaken by private companies, either setting up entities in other countries or buying into existing firms. These are considered to be legitimate business practices which do not not impinge on politics-this despite the fact that U.S. corporations have repeatedly involved themselves in politics when it has suited them, such as when Firestone used its clout in Liberia's economy in 1947 to persuade its government to reverse its stated position of opposition to the partition of Palestine.

Most of the world's other countries do not share this perspective, however, in part because they have more of a history of the state taking a direct hand in the economy. Among the more extreme examples in the modern world are countries that are or were under a formal system of state management, particularly China; and the major oil-exporting countries, which have managed much of the wealth generated by oil sales through state-controlled enterprises. A complication in the latter case has been the interlocking relationship in Gulf Arab countries between traditional ruling families and the state: the distinction between the two can be unclear at times.

Such countries argue that their government-linked funds are legitimate enterprises that do not engage in politics, which they say they keep separate from business. In the past U.S. administrations were reluctant to accept these assurances, but this position has been eroded under the Bush administration, whose tax cuts and military spending have created a growing dependence upon foreign countries continuing to do business and save money in U.S. dollars. Prominent among those countries are the abovementioned China, first and foremost, and the Arab oil-exporting states of the Gulf.

The sub-prime mortgage woes of the past year created a need for more foreign capital and less choosiness about its ownership. In October 2007, China's Citic Securities and Bear Stearns, the fifth largest U.S. securities firm, agreed to invest $1 billion in each other as part of an alliance to further their business in Asia. In November, the Abu Dhabi Investment Authority, the largest sovereign wealth fund in the world, with estimated assets of $650 billion, agreed to buy a $7.5 billion stake in Citigroup. In December, China Investment Corp bought a $5 billion stake in the second largest U.S. securities firm, Morgan Stanley.

It all seems a far cry from what happened when Dubai-based DP World announced its wish to acquire P&O Steam Navigation Co in 2006. Congress insisted on examining the proposed deal because of the danger it was said to pose to U.S. security. Visions of Arab terrorists swarming ashore as the country's defenses were undermined in the six ports covered by the deal were enough to scupper it.

The record of institutions and companies linked to the ruling families and states of the Gulf countries shows that they have consistently put business before politics in making investments in the U.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Official U.S. Warms to Asian, Middle Eastern Government-Linked Funds


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?