We shall now deal with any queries or comments that might arise from the discussion we had at the outset on the sovereign wealth funds and the report prepared by Senator Donohoe.
Rapporteur’s Report on Sovereign Wealth Funds (Resumed).
I compliment Senator Donohoe; it is an excellent report and one which we need time to further consider. The content is very interesting.
I concur with that.
I have a question on the third proposal which is that Ireland should continue to support all measures to increase the transparency and autonomy of the funds from political influence. How will this be done?
One of the recommendations made by the European Union is that even if the money in question is owned by a government the people who would decide where the money would be invested would not be influenced by that Government. That is what we do in Ireland; even though the money in question that constitutes the National Pension Reserve Fund is the taxpayers' money or the Government's money the decisions regarding where it goes are made by a board that is separate from the Government.
I see. It is not political.
That is it exactly.
I congratulate Senator Donohoe for the very excellent report he put together which is very informative. It is also very stark in that if one examines it in detail the only European country with a sovereign fund is Ireland, which makes a fair statement about us as a sovereign nation. It goes back to the point made by the Minister of State, Deputy Roche. We have a National Treasury Management Agency that was officially resisted, and a political figure in the person of the then Minister for Finance, Albert Reynolds, insisted that it be created. It has made a significant contribution to reducing or bringing massive efficiencies to our national debt.
We set up the National Pensions Reserve Fund, to which Senator Donohoe alluded, with a €31 billion value as of this report. That political decision taken by former Deputy Charlie McCreevy was resisted at the time. Everybody said it was ridiculous but where would we be today if we did not have that fund? Looking to the challenges ahead for us and the pension demands of the future, there must be a major cultural mind set change in the country as those who benefit from pensions will have to make an even greater contribution. We cannot continue to pay money out to those who do nothing, and for those who work hard, we cannot continue to pay high pensions commensurate to their hard work and high salaries unless they make a greater contribution. Our sovereign fund must be increased in that respect.
I have consistently said at political and council meetings in Europe and elsewhere, and it is also very clear from the report, that the European Union is not using its resources efficiently as there is a massive potential to create a sovereign fund for itself. It could attract from its citizens and from the international world investments that could be secured in a sovereign fund, although the fund vehicle may have to be amended to allow this. There is a capacity to create a fund within the Union, resourced by citizens and corporations which want to contribute to the Union; there is no vehicle to do so at this time. That in turn could be used by the Union not only to fund the requirements of member states but also to fund, in partnership with others, certain global requirements that would help economic development, global peace and some of the issues we discussed earlier.
There is much potential in this respect in this important fund. Political influence must be singular and the decisions must be taken on the basis of what is in the common good with investments made. Those who pay the piper will not be able to play the tune that suits themselves. This goes back to both the European Union and Ireland's commitment to overseas development aid. All the funds we give to overseas development aid are clear and singular commitments without conditions and they lead to significant benefits.
On the other hand, some say in these difficult economic times we should have conditions on these funds and we could create jobs in that respect. My mind is open to this but I have not yet seen anything to make me change my mind from the commitments we made on overseas development aid. Senator O'Donohoe's report is very important and a copy should be sent to the Minister for Finance.
Senator O'Donohoe has done us a great service and provided a good report with interesting conclusions. For example, Ireland should put in place plans to attract sovereign wealth and investment to provide additional capital. A copy should be sent to the Tánaiste and Minister for Enterprise, Trade and Employment, who has responsibility for the IDA and those who attract foreign direct investment to the country. There should be a specific area devoted to attracting some of this significant funding, and as Ireland has already been a beneficiary, there is no reason that with a strong focus like we have shown in the past, we cannot gain further benefit. It would be appropriate to send it to that Minister as well.
I compliment Senator Donohoe on the report. I am somewhat interested in the area, although not to the extent Senator Donohoe is interested. It is an important issue as there are opportunities and some dangers, as the Senator has outlined.
I might add some comments before Senator Donohoe responds. I thank the Senator on behalf of the committee for his excellent work in an area that might pass by members of this committee. The paper is well put together in that it avoids the technicalities of the investment approach of these sovereign wealth funds but considers the implications from the point of view of the sovereignty of individual states and companies and their impact on the state, which is particularly welcome.
The Senator has identified the European approach, which is that in order to continue the free movement of capital we should take a softly-softly approach in terms of specific regulation, although he does not get into the detail of what individual countries should do where there is a concern about their sovereignty. As Deputy Treacy has said, when we look through the list of countries that have these funds, quite a few have an approach to democracy that is different to ours.
Exactly.
The Senator also mentions in his report the notion of ruling families and bodies controlling these funds and how the concerns rightly come about. Is it his view that individual member states should come forward with proposals with regard to a scrutiny role for companies that seek this investment, such as banks, or does he believe we should have a lighter approach to regulation and allow the market to dictate the investment principles? We do not want any barrier that may suggest Ireland is not open to foreign direct investment. Notwithstanding that, we have been good at obtaining foreign direct investment, particularly from the United States. We have not seen the same level of investment from the east. However, many of the companies that now find themselves in significant difficulties are looking to the sovereign wealth funds of the east. What lies behind that curtain, in terms of complications at a later stage, will not concern those companies now because they are only interested in cash. There are clearly other implications, particularly from the point of view of the banking crisis. We are all working towards ensuring the banks are fit for purpose and that their assets and capital positions are improved to a point at which they can start lending to small and medium-sized enterprises. The approach they had in the past can be regained. However, if there is an investment arm with a different agenda we should be concerned about this.
I thank the Vice Chairman and all my colleagues for their contributions. As Deputy Treacy said, Ireland is unique in leading the way in this regard as we have such a fund, which is recognised around the world as being well run and has attracted major plaudits for the way in which it is managed. There is one other country in Europe — that is, Norway — that has a significantly larger fund than Ireland, which it has funded through its natural resources. The points made by members highlight why this is an important area for us. Were any type of control to be put on these funds, we would be disadvantaged because our own fund is such a big player and is potentially a source of revenue that I suspect our country will badly need in the future.
Senator Hanafin suggested the report be circulated to the Minister for Enterprise, Trade and Employment, and Deputy Byrne said it should be circulated to the Minister for Finance. I am sorry; that was Deputy Treacy.
The Chairman of the Oireachtas Joint Committee on Finance and the Public Service.
I would be delighted to see that happen. The question I pose is as follows: if we all woke up tomorrow morning and found that the Abu Dhabi investment authority intended to buy a quarter of Bank of Ireland, would this be a relevant issue for political discussion?
It might be possible.
It is possible, when we get beyond NAMA and so on. If we turned on "Morning Ireland" and heard that one of these investment funds was about to acquire a large stake in an Irish bank, this would become a major issue.
That is my concern. It is not so much a matter of a stake in one, but two of our main banks.
The fund might even buy the bank.
A controlling interest in two or three banks as opposed to just one would be bad. From a banking point of view, we are in a perilous state. Senator Donohoe has raised valid points.
I agree with Senator Hanafin's description of some financial funds as vulture funds. While hedge funds are usually described in this way, it is likely that the funds in question will be larger and have a greater sway than them in a few years. A debate by the committee or the country at this point could prepare us in a small way for what role those funds will play.
I will conclude with the Vice Chairman's point. He hit the nail on the head where possible controls are concerned. If a fund was to acquire a private company, I am not 100% sure what legal role a domestic parliament could play in, for want of a better phrase, vetting it. The EU could be important in this regard. Due to the weight of its influence, it can promote the development of the kinds of standard that we want. If Norway or Saudi Arabia made a large purchase in Ireland, it would adhere to our preferred standards. We will hear this discussion again and again as the sovereign wealth funds develop. I hope the report's circulation to colleagues will make them aware of what the funds are and better equip us to comment if such funds play a role in our economy in future.
I will conclude with a small point. When Deputy Treacy discussed a table in the report, I noticed that I omitted its source. If the committee agrees, I will include its source in the final report in case anyone wants to find it.
I thank Senator Donohoe. The report is without prejudice to any member state or non-EU country with a sovereign wealth fund. Were it suggested in the morning that the Libyan Arab Foreign Investment Company would take a stake in two banks, serious concerns and questions would rightly be raised.
I welcome the report and look forward to the ongoing debate. I was going to suggest that it be referred to the Joint Committee on Finance and the Public Service, which could discuss the more technical issues. With the Senator's permission, I intend to submit the report on behalf of the committee to the Seanad, where a broader debate could occur. The Senator could work with the Leader to ensure that this be done. If members wish to suggest that the report be discussed in the Dáil, I will happily accept the proposal. Since there is a proposer and a seconder, it is proposed that the report be submitted for a general debate in plenary session.
I agree with Deputy Thomas Byrne that the report should go to the finance committee, which would address the issue of the Dáil. If the Seanad wanted to refer the report to the Dáil after concluding its own debate, that should be the case. We should not take away from the report's quality or the opportunity that it presents by putting it all over the shop at this time. It would be better to have it well debated in the Seanad and the finance committee. That the report will go to the Ministers for Finance and Enterprise, Trade and Employment is important.
The report addresses funds taking shares in banks and so on, but we must be mindful of the fact that wealthy families across the world with funds invested not too far from this island could do the same. Senator Donohoe made a good point, in that the Parliament might not have the legislative capacity to prevent such a situation from occurring. The only solution would be the EU. However, since it could be at full stretch from the point of view of competition, it might not be able to deal with investments from outside the Union. These are issues to examine in great detail so that as the world evolves from the current global crisis and Ireland comes out of it as quickly as possible, Deo volente, we do not wake up when the grass is green to find different people than expected had sowed the seeds.
Is the report agreed subject to the amendment on the source of the table referred to by Senator Donohoe? Agreed. Is it agreed that the report be laid before both Houses of the Oireachtas? Agreed. Is it agreed that a debate in the Seanad be called for? There was a proposal that this should be considered by the Joint Committee on Finance and the Public Service first.
It is not fair to the report. This is very important and if we rapidly step forward, we will take away from the quality and magnitude of it. If we are to do this in a measured way, it should be considered by the relevant Ministers and the Joint Committee on Finance and the Public Service and there should be a debate in the Seanad because a Senator compiled the report. At the conclusion of the debate in the Seanad, if Senator Donohoe and the Seanad agree the Dáil should debate it, let us do that.
Our proposal is that this report should be sent to the Joint Committee on Finance and the Public Service with the proviso that after it is debated there, it will advance to the Seanad. It is open to the Senator to raise it on the Order of Business. We want to facilitate Senator Donohoe.
That could be interesting.
Is Senator Donohoe a member of the Joint Committee on Finance and the Public Service?
In that case, Senator Donohoe should be invited to the meeting as a witness to bring the report through before taking it to the Seanad so that it can make a decision.
Senator Donohoe should not have to raise this any further. The decision we take should put this on an agenda somewhere.
I thank committee members. I would be pleased to do as suggested. What would be our reaction if we turned on the radio to find that all of our banks had been purchased by one of these funds? If this report does nothing but cause that debate to take place now, I will be delighted with the work I put into it.
Is that proposal agreed? Agreed.
The joint committee went into private session at 4.10 p.m. and adjourned at 4.45 p.m. until 12.30 p.m. on Tuesday, 28 July 2009.