US Treasury to meet with Gulf SWFs

UPDATE 3: Deputy secretary says US wants to make clear it is open to investment from wealth funds.
US Treasury to meet with Gulf SWFs
By Tom Arnold and Dylan Bowman
Tue 28 Oct 2008 11:27 AM

Officials from the US Treasury will meet with representatives from Gulf sovereign wealth funds (SWFs) this week during a trip to the region, the deputy secretary of the Treasury said in Dubai on Tuesday.

Speaking at the Dubai International Financial Centre (DIFC), Robert M. Kimmitt said the Treasury wants to make clear the United States is open to investment from SWFs.

"What we are really doing is simply continuing to make clear to sovereign wealth funds that we are open to investment that’s done on a commercial, not political basis that does not raise security concerns," Kimmitt told reporters after his speech.

"We think that they are continuing to look very closely at opportunities in the United States. We have a number of cases before the Committee on Foreign Investment right now," he added, without going into further detail.

The US Committee on Foreign Investment examines national interest issues and is part of the Treasury.

Gulf SWFs in the last 12 months have invested billions of dollars in emergency funding into troubled US financial institutions grappling to cope with the fallout from the subprime crisis and ensuing credit crunch.

The Abu Dhabi Investment Authority (ADIA) agreed in November to buy $7.5 billion of stock in Citigroup, while the Kuwait Investment Authority (KIA) in January invested $5 billion in Merrill Lynch and Citigroup.

The KIA has also bought almost $800 million of shares in the initial public offering of credit card firm Visa.

However, politicians in the United States have expressed concern that state-backed funds could harbour political motivation rather than strictly commercial, leading to some funds to look elsewhere to invest their money.

Kimmitt said during his speech the Gulf region is not immune to fallout of the financial crisis engulfing the United States and Europe.

He said the UAE and the wider Gulf region's growing economic openness has increased its exposure to the global market turmoil and credit crunch.

Kimmitt described the financial crisis as "the most serious and challenging in memory".

"In recent weeks it has become evident that the turmoil is not isolated to the US and Europe but has ramifications for all countries including in the Gulf," he said.

"The UAE's openness has also brought exposure to global economic turmoil and changes in global credit markets are affecting both the Emirates and the Gulf more broadly," he added.

However, Kimmitt said the UAE has taken "decisive action" to shield its banks and markets from the crisis.

The UAE central bank last month opened a 50 billion-dirham emergency facility for banks to tap, with the funds offered at a premium to market rates.

Then the UAE Ministry of Finance last week said it was injecting a separate 25 billion dirhams of funds directly into the banking system, in the form of long-term deposits.

The UAE has also said it will guarantee all bank deposits and interbank lending in a bid to boost confidence in the health of the financial sector.

Kimmitt said countries need to work together to weather the crisis.

"It is critical to learn the correction lessons from the current turmoil starting with the fact that our economies are stronger acting together than in isolation," he said.

"Collectively we need to rebuild confidence in our markets so that capital can flow again to help global growth."

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