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International Monetary Fund

European countries), interventions focused more on domestic and foreign exchange liquidity. Some countries used state-owned financial institutions to address credit bottlenecks (e.g., France, Japan, and South Korea), including through directed lending. Other countries used sovereign wealth fund (SWF) assets rather than issuing debt. Finally, countries with weak fiscal positions and limited borrowing capacity adopted measures with low initial costs, such as guarantees, or involved off-budget entities to avoid affecting the measured fiscal balance. 7. Countries

Abdullah Al-Hassan, Mr. Michael G. Papaioannou, Martin Skancke, and Cheng Chih Sung

I. Background and Motivation Total assets under management by Sovereign Wealth Funds (SWFs) have been growing rapidly over the last few years and estimates of their total holdings vary considerably, depending on the used definition of a SWF. Upper-end estimates indicate total SWF assets of around US$5 trillion. This figure, however, may double count some sovereign assets, by including central bank assets that are already captured in official reserves. Based on the definition of the International Working Group (IWG) of Sovereign Wealth Funds (2008), which

International Monetary Fund. External Relations Dept.

their investments and restrictions on international capital flows,” he added. Positive role in global financial system Highlighting the increasing importance of SWFs not only in their own countries but also in the international financial system, Lipsky said that such funds today account for between one-fourth and one-third of all foreign assets held by sovereigns. “SWF assets are projected to surpass the stock of foreign exchange reserves in the not-so-distant future and to top $7—$11 trillion by 2013,” he said. Praising the “shock-absorbing role” that the

International Monetary Fund

motives. Oil-exporting countries own 23 of the 38 SWFs identified by the IMF, holding around 72 percent of all SWF assets. Two other motives for establishing SWFs are to balance the significant costs associated with excessive reserves accumulation (such funds are estimated to hold around 20 percent of SWF assets) and the need to secure future welfare obligations. 8. SWFs invest in a broad variety of assets, depending on individual objectives . For countries with reserves pools in excess of immediate central bank liquidity needs, creating a separate SWF can allow some