From Africa Recovery, Vol.11#2 (October 1997), Briefs page

Foreign aid 'pulls in' private investment, World Bank says

At a time when the surge in private capital flows to emerging markets has strengthened the voice of critics of foreign aid, World Bank President James Wolfensohn has said that aid "pulls in private investment," spurs economic growth and reduces poverty. But poor countries must have "sound economic policies," he added at a mid-September symposium in Tokyo on "A new vision of development cooperation for the 21st century," jointly organized by Japan's Overseas Economic Cooperation Fund (OECF) and the Bank.

Foreign aid is even more important than in the past for most developing countries, said Mr. Joseph Stiglitz, the Bank's Senior Vice President and Chief Economist. Of the $244 bn in private investment flows to developing countries in 1996, World Bank research presented to the symposium shows that just 26 countries took in 95 per cent, while another 140 developing countries shared the remaining 5 per cent. Japanese and World Bank speakers pointed out that even in the main recipients of large capital flows, relatively little went to the key health and education sectors which underpin the economy.

Much of the massive aid that Japan received after World War II funded major infrastructure projects that were the "cornerstone of Japan's dazzling economic growth" in the 1960s, said OECF President Akira Nishigaki. While private sector-led infrastructure development has been important in many countries, Mr. Nishigaki said that "there are still many areas that call for development using public funds, with governments displaying initiative and leadership."

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