Implications of Sovereign Wealth Funds on the Governance of the Middle East Region

Abstract

The rise of Sovereign Wealth Funds (SWFs) globally has become an irreversible trend. Among all the regions across the world that have established SWFs, the Middle East has the longest history and possesses huge strengths. Today, it is evident that the SWFs are playing ever-important roles in financial operations, local development and global cooperation for the Middle East, which has major implications for SWFs' potential on the governance of this region in the future. As an emerging and powerful financial instrument mastered by sovereign countries, especially for those with abundant natural resources, SWFs can eliminate the impact of commodity price fluctuations and foreign exchange earning surpluses on the domestic fiscal and monetary policies, contributing to a stable and sustainable economic and political development. As accepted regular method of close cooperation among countries, especially ones in the Middle East, SWFs can serve various economic and political agendas between the Middle East and the rest of the world, constituting wider and deeper connections despite the lack of private overseas trade and investments in this region. In fact, SWFs from a variety of countries, as well as international financial institutions with sovereign background, have participated actively in the governance of the Middle East region. However, there are still challenges for applying SWF to the governance of the Middle East region. The SWFs in the Middle East need to improve their performance and transparency consistently against the doubt of their sustainability due to the depreciation of oil prices and the complexity of the Arab world. The international community needs to treat the SWF threat theory recognized by some Western developed countries to facilitate further SWF involvements. Vigorous international cooperative mechanisms concerning SWF need to be created to address those issues. 65 As emerging power in the evolving international financial system, Sovereign Wealth Funds (SWFs) are of ever greater importance to the governance of the Middle East Region, not only because they represent the common national interests of most countries there, but also because they constitute the common concerns between the region and rest of the world.