Gulf's money is vital for stability

Dubai: Gulf money is crucial to the stability of the global financial system, Deutsche Bank's chief said and called for "non-discriminatory" investment regimes in countries that get cash from sovereign wealth funds (SWFs).

State-managed Arab and Asian funds have poured billions of dollars into top Western financial institutions gasping for capital due to losses related to the US sub-prime mortgage market meltdown.

This has also led to concerns in some quarters that SWFs could potentially gain control of companies receiving the money and calls have been for a closer scrutiny of their investments.

Josef Ackermann, chairman of the management board Deutsche Bank and chairman of the Washington-based Institute of International Finance (IIF) board of directors, said these concerns should not lead to imposition of "higher obligations on sovereign investors than others."

"Sovereign investors and recipients must realise that they share a mutual interest in liberal, open rules for market access," he told senior banking executives in Dubai on Saturday evening.

IIF research put the total public and private foreign holdings of the six Gulf states at $1.8 trillion at the end of 2007. This is expected to grow more than $2 trillion by the end of this year.

Ackermann said "we must take note of the Gulf's enormous importance to the stability of the global financial system."

He said the deployment of Gulf assets has played "a vital role in smoothing global imbalances, by providing a demand for US dollar assets, and more recently, by extending capital to individual financial institutions in mature economies."

UBS, Citigroup, Credit Suisse are among the financial companies that have received funding from foreign state funds.

Ackermann said the US sub-prime mortgage crisis has exposed structural problems in the financial markets, and called for more transparency on the part of financial services firms.

"Every firm has to create complete clarity for itself, the market and the relevant regulatory authorities, with regard to its exposure; and every market participant has to be clear about its contingent liabilities. In the future, there must be more openness than there is today, not only about individual products and transactions, but also about the business as a whole," he said.

He noted that the econ-omic boom in the Gulf and the strength of many emerging market economies are "in stark contrast to the significant slow-down we are now seeing in the mature economies."