Spain already has a sovereign wealth fund: what does Pedro Sánchez want to do now?

MadridInternational sovereign wealth funds—publicly owned investment funds—are not unknown in Spain. In fact, like many countries that suffered the ravages of the financial crisis, the state embraced them as economic stabilizers: external liquidity has been (and continues to be) a precious resource in the face of insufficient domestic capital. And for years, the democratic deficit of some of the countries that control these sovereign wealth funds—the vast majority of which originate from oil and gas production—has not seemed to bother governments, despite repeated warnings about the need to control their operations.

But today, the playing field of the world order as we knew it is slowly eroding, and the state, including Europe in general, has entered the race for funds to achieve greater strategic and competitive autonomy, and to address shortcomings through its own resources. In this context The sovereign wealth fund of the State is born, or so Pedro Sánchez has named it, even though its weight in strictly financial terms is the opposite of the quintessential sovereign funds (some are equivalent to a large economy only behind that of the United States and China).

Foreign capital alarms

The Spanish government has explained that it will use the fund to finance issues related to the energy transition, digitalization, reindustrialization, infrastructure, housing, and security. These are key sectors where the recent influx of foreign capital has raised concerns: following the Saudi operator STC's acquisition of Telefónica, the sovereign wealth fund Public Investment Fund (SIFP) was involved, a move that partially reversed the company's privatization by bringing the state into the capital. This broke a taboo. But the Spanish government also wants the fund to fill gaps in the economy that other actors are not addressing: traditional banks, for example, are reluctant to finance affordable and social housing developments, a situation the government intends to reverse through this fund.

Sánchez explained this Monday that through the ICO, an agency under the Ministry of Economy, the Spanish government hopes to use this investment lever to inject funding into productive and competitive sectors—which are therefore quite sensitive—and address certain endemic problems, such as the lack of public rental housing. But it also aims to strengthen the state's autonomy.

Transparency, the key point

Given that sovereignty and public interest go hand in hand, Sánchez has promised "transparent and rigorous" governance of the fund. He has also pledged to be "accountable to the public," although he hasn't specified how or when. This will be essential to avoid the regrets some governments have experienced, feeling that for years foreign investors have been asked for little explanation. But above all, it's crucial to avoid sending the message that the public is ready to accept public money being channeled into private projects, but not to engage in the debate about the role the State should play, especially on this path toward strategic autonomy for Spain and Europe. "Spain needs a fund that invests in the future of Europe [...]. And contrary to what some think, Europe is a winning bet for the country," Sánchez said on Monday. Now he will have to prove it.