Summary
Inside the Authoritarian State
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Sovereign wealth funds in nondemocratic countries: financing entrenchment or change?
The rising prominence of sovereign wealth funds--investment funds that are owned or controlled by national governments--has stirred debate about their potential use as tools to pursue global political interests rather than economic or financial ends. Recent sanctions levied on the Libyan Investment Authority, formerly operated by the government of Muammar al-Qaddafi, underscore this question. This article argues that the governance, accountability and transparency arrangements of sovereign wealth funds reflect the quality of political institutions within the countries that own them. In contrast to funds based in democratic states, those managed by authoritarian governments are distinguished by a lack of public oversight and are instead tightly controlled by the prevailing political leadership. The link between political leadership and fund management in many authoritarian countries allows governments more flexibility in using financial assets to pursue immediate political agendas.
********** As the unrest in Libya escalated in February 2011, the United Nations Security Council voted unanimously to adopt Resolution 1970. This measure--along with Resolution 1973, which closely followed it in March--condemned the Libyan government's use of force against civilians and imposed a number of international sanctions on the country, (1) In an attempt to drain financial resources from the government of Muammar al-Qaddafi, the Council requested that UN member states freeze all funds, financial assets and economic resources controlled by institutions and individuals affiliated with the regime." One of these institutions was a sovereign wealth fund (SWF) named the Libyan Investment Authority (LIA). Established by the Qaddafi government in 2006 to manage state-owned financial assets, it was mandated to build a well-diversified investment portfolio that would create a sustainable source of revenue, reduce the economy's dependence on oil an...See the full content of this document
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