Workshop on International Law, Natural Resources and Sustainable
Development
Sovereign Wealth Financing Paradigms in Natural Resources: Transparency Issues and
International Regulation
Diane Desierto
School of Law, University of Hawaii Richardson
Over the past decade, States have increasingly resorted to establishing sovereign wealth funds
(SWFs), in orders to separately and independently manage State revenues and assets from
natural resource exploration, extractive activities and commodities trading. Developing
countries in Africa (such as Ghana, Mozambique, Tanzania) and Australasia (Burma,
Australia, China, Southeast Asia), which have become the foremost sites to date of new
energy, minerals, and other natural resource explorations in recent years, are frequently urged
by international experts and international financial institutions to set up SWFs to avoid
following the route of the “resource curse” (e.g. poor asset management, rent-seeking,
corruption and siphoning of natural resource revenues away from the macroeconomy) and
avert incurring the “Dutch disease” (e.g. the competitiveness decline in the manufacturing
sector arising from a stronger exchange rate fueled by natural resource revenues/foreign
exchange reserves) which beleaguered many resource-rich developing countries in the 1970s.
SWFs generally operate as special purpose vehicles insulated from the fiscal budgetary
process, designed to prudently manage the State’s natural resource revenues and assets to
yield continuing returns to the State, and ultimately, to contribute to overall economic growth
and development. Depending on the State’s short-term and long-term fiscal policy objectives,
SWFs in natural resources may thus take on different forms, contain diverse liquid or illiquid
asset portfolios, exemplify particular risk and return objectives, and correspondingly, reflect
varying degrees of public-private hybrid governance structures. A short-term price-shock
insulating form of an SWF, for example, would be a stabilization fund, which creates an
alternative form of reserve financing for a State during economic crises, and ultimately,
lessens the State’s dependence on external financing from international institutions that often
impose (usually onerous) conditionalities. A more long-term and intergenerational form of an
SWF would be a saving fund, which tends to hold more diversified liquid and illiquid classes.
The world’s largest, most-admired, publicly updated, and transparently governed SWF,
Norway’s Norges Bank Investment Management (NBIM) (otherwise known as the
Government Pension Fund Global), is one such example of a longterm and intergenerational
SWF.
The recent proliferation of SWFs that undertake both natural resource revenue management
and reinvestment in natural resources raise urgent issues of public transparency and the
evolving role of international regulation over the operations of SWFs. Despite its usual
private equity orientation, there is an indubitable public interest in the oversight, management
and investment decision-making processes within SWFs. As institutional investors, SWFs
will very likely be covered within the scope of many currently subsisting international
investment agreements. To the extent that an SWF can affect natural resource operations
upstream (by managing natural resource revenues) and downstream (by reinvesting in other
natural resource operations), this paper will explore the accountability and transparency
mechanisms that could be voluntarily mediated as best practices (such as through the SWF’s
adoption of the Santiago Principles), or invoked as a matter of law through treatment and
transparency standards present (as well as nascent) in certain forms of international
investment agreements.