Trichet fiddles, Norway greens its portfolio

The outlook for Europe is getting gloomier, with the EU now cutting its forecast for growth this year. This is a dangerous Chapter 2 to the financial crisis emanating from the US, since it kicks one more leg out of the global economic table. Complicating matters for the EU is the euro's strength against the dollar, which has hurt manufacturing competitiveness to the extent that Airbus is seeking to move more production outside the zone - without actually cutting jobs to make the move profitable. European Central Bank president Jean-Claude Trichet is still fulminating against inflation, even as the economy sputters and stocks sink. The slowdown may ease that currency pressure, along with the perceived cost of rising tensions with Russia. Short of Russian tanks parading down the Champs-Elysees, the more likely source of concern is that Europe depends on Russia now for gas. Make no mistake: the spreading malaise in the West is having an impact on liquidity here, despite the ongoing boom. More companies are now reportedly turning to their existing shareholders to fund their expansion plans rather than pay rising interest rates to banks and bond investors. Vanishing liquidity is sucking money out of regional stock markets faster than you can say "currency peg." Here's the latest example of the inherent conflict of interest that sovereign investors face: Norway's massive pension fund, the world's second-largest sovereign fund after ADIA, just dumped its entire $850 million stake in Australian mining company Rio Tinto because of Rio's environmental record in Indonesia. According to the Norwegians, Rio's partnership with US gold miner Freeport McMoRan in Papua is bad for the local environment, and Norway wants no hand in it. Of course Norwegians don't want to be contributing to environmental damage in Indonesia, or anywhere else for that matter. But Rio is the subject of a hostile takeover bid by fellow Aussie miner BHP Billiton, and dumping a big stake like that isn't likely to help Rio's defense. Assuming Norway sold on the open market, it may in fact have been BHP that bought the stake. Either way, the sales may not have been the most profitable use of that $850 million. But given the fact that the fund belongs to the public, should it be allowed to invest in things the public would oppose on ethical grounds? Should Indonesia protest to Norway that pulling money out of companies investing in its development is not good for relations? Perhaps, as most sovereign wealth funds seem to have determined, the public is better off not being aware of how or where it's savings are invested.