Mobilizing international resources
for development: foreign direct investment and other private flows
United Nations, A/ AC. 257/ L. 2, June 2000
"Mobilizing international resources for development:
foreign direct investment and other private flows
4. Enhancing private capital flows for financing development:
facilitating private flows, especially longer-term flows; expanding foreign direct
investment to a much larger number of developing countries, countries with economies in
transition and sectors; enhancing the development impact of investments in transnational
corporations in developing countries; improving measures in destination and source
countries to reduce risks of excessive international financial volatility;
capacity-building and technical assistance."
Full Text of Agenda
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United Nations, A/AC.254/24, March 2001
" Heading II. Mobilizing
international resources for development: foreign direct investment and other private flows
Long-term investment flows, in particular foreign direct
investment, are of essential importance in complementing the national development efforts
of developing countries and countries with economies in transition, particularly to
consolidate infrastructure development, enhance technology transfer, deepen productive
linkages and boost overall competitiveness.
A central challenge is to attract FDI flows and other private
flows to a much larger number of countries and sectors. Key to this effort is the
emergence and consolidation of transparent, stable and predictable frameworks for private
activity as well as the institutions, corporate governance and infrastructure that allow
businesses, both domestic and international, to operate efficiently.
One immediate priority area would be helping countries that have
made significant progress in the institutional and policy front to gain recognition among
international investors. Another priority area is the creation of guarantee and/or
co-financing mechanisms to help encourage FDI to countries and sectors where there are
insufficient flows.
Would global hearings –involving governments, the private
sector and civil society- to discuss the issues surrounding international investment
agreements contribute to find common ground to facilitate investment flows to more
developing countries and sectors?
How can the international community, and in particular technical
assistance programs by the international financial and trade institutions, contribute to
foster a good climate for a dynamic private sector –both domestic and foreign- to
support development?
How can international organizations further support the efforts
of developing countries and the private sector to improve corporate governance in support
of development, including through innovative partnerships that enhance social and
environment responsible investments as well as through the formulation and implementation
of competition policies and corporate standards and regulations that effectively take into
account the needs of developing countries?
How to strengthen public-private partnerships, including through
ODA leverage and the support of the international and regional financial institutions, to
finance critical infrastructure projects and other priority development areas for
developing countries and countries with economies in transition, not only by sharing risk
with the private sector, but also by improving awareness of business opportunities in
these countries?
How to enhance the role of export credit and guarantee
authorities and corresponding bodies at the multilateral level, for instance MIGA, as well
as private sector bodies of the multilateral development banks, e.g., IFC, FIAS, in
stimulating and triggering increased flows to developing countries?
Which other measures and incentives could be effectively used by
source countries and international institutions, both public and private, to encourage
corporations to invest in low-income countries, and/or in sectors with the greatest
developmental impact?
What further action by international financial institutions and
public-private partnerships could help promote more and deeper linkages between foreign
affiliates and the domestic economy to enhance the developmental impact of foreign
investments, including through enhanced transfers of technology? How best to link the
promotion of small enterprises in developing countries to efforts to maximize the benefits
from foreign investment?
How to strengthen the contribution of the multilateral
development institutions, particularly the World Bank and the regional development banks,
working in partnership with the private sector, in supporting the promotion of long-term
private financial flows to regional and subregional development projects?
Bearing in mind that financing from equity and other securities
is key to corporate financing, what additional steps are necessary to promote
institutions, such as regional stock exchanges, and innovative instruments, to expand the
access of developing countries to securities markets?
Which should be the features of the technical assistance for
capacity-building to contribute to enhancing private capital flows for financing
development, particularly in the areas of human resource development and institutional
strengthening including through science, technology and ICT?"
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Report
of the Secretary-General
to the Preparatory Committee for the
High-Level International Intergovernmental Event
on Financing For Development
United Nations, A/AC.257/12, January 2001
"Host developing countries and countries with
economies in transition that seek to attract long-term international investment flows
should continue to take steps to put into place a transparent, stable and predictable
framework for private investment and the institutional infrastructure that allows its
efficient implementation. Such a framework and the related infrastructure encourages not
only international but also, just as importantly, domestic investment.(...)
An inventory of home-country measures to enhance FDI
outflows to developing countries should be established. Developed countries should emulate
best practices regarding such measures, and should devise additional measures to encourage
and facilitate investment flows to developing countries, especially least developed
countries and other low-income countries.(...)
Member States should consider the convening of ad
hoc global hearings to discuss the issues surrounding international investment agreements,
in particular the extent to which such agreements can further the development of
developing countries. Such a dialogue should involve Governments, the private sector and
civil society.(...)
The high-level meeting should encourage relevant
international organizations to undertake a deeper examination of issues related to
corporate governance, in particular their relevance to developing and transition economy
countries, taking into account their specific legal, social and cultural environment. In
particular, support should be given to efforts to develop and implement international
accounting, reporting and auditing standards, taking the needs of these countries into
account.(...)
The relevant international organizations and donor
countries, in cooperation with the potential recipient countries and with firms and
private-sector associations, should expand and facilitate information flows on investment
opportunities in developing countries, particularly least developed countries and African
countries. At the same time, international institutions involved in supporting FDI flows
should evaluate the development impact of investment flows in recipient countries,
including social development concerns.(...)
Countries should examine critical infrastructure
constraints for private sector development. Priorities should be identified for the
involvement of the private sector in the financing of infrastructure projects, including
those in areas, such as telecommunications, that help to bridge the digital divide.
Private-public sector commercial partnerships (e.g., co-financing, partial or full risk
guarantees, and technical assistance and advisory services) may also offer opportunities
in support of the above. In cases in which host countries provide incentives to encourage
private-sector financing, guarantees should be fully identified, appropriately classified,
and monitored so that they do not hide contingent fiscal risks that could threaten fiscal
stability.(...)
The high-level meeting should propose the
establishment of an expert group to examine ways and means by which FDI flows among
developing countries can be further encouraged. Attention should be given to "growth
triangles", especially those comprising geographically proximate areas, and to the
role of regional investment frameworks in facilitating an intraregional division of labour
and helping to attract FDI.(...)
ost and home countries, as well as transnational
corporations and international organizations, should compile an inventory of best
practices through which more and deeper linkages between foreign affiliates and local
enterprises can be encouraged, with a view to helping to foster a vibrant domestic
enterprise sector in developing countries; in particular, this inventory should contain
successful practices to transfer and disseminate technology, as well as to build local
research and development capacities. Transnational corporations should emulate such best
practices to the largest extent possible. Likewise, options should be devised through
which existing commitments in international agreements to encourage the transfer of
technology can be operationalized.(...)
Greater international cooperation among national
competition authorities is necessary and should be encouraged. Special attention should be
given to work aimed at strengthening international cooperation on competition policy and
regulation, in particular as regards mergers and acquisitions, with a view to promoting a
greater understanding of the issues involved, especially in developing countries, and to
increasing cooperation in implementation among all countries concerned. Merger review
guidelines have a role to play in this context by increasing transparency and reducing
differences in the technical criteria used.(...)
Transnational corporations and other firms should
accept and implement the principle of good corporate citizenship and should, inter alia,
subscribe fully to the United Nations Global Compact. Global Compact participants should
take specific measures that foster development - including innovative partnerships,
linkages and collective action - and share their experience with all stakeholders.(...)
Credit-rating agencies should endeavour to rate
sovereign risk according to criteria that are as objective and transparent as possible.
Borrowing developing and transition economy countries should give priority to the
development of reliable local systems of credit information in accordance with
international practices and in close cooperation with international rating agencies.(...)
Governments and international organizations should
implement measures to strengthen the transparency of financial markets; and the relevant
authorities, in their review of the impact of the activities of highly leveraged
international investors on the stability of national banking systems, should propose ways
in which the risks associated with this impact can be taken into account in revising the
existing capital adequacy standards for banks.(...)
Recent initiatives of the General Assembly and the
Bretton Woods institutions in the fight against money-laundering should be pursued and
Member States should continue to strengthen measures against illicit transfer of funds and
improve the exchange of information across borders; encourage additional measures by large
international banks; and enhance international cooperation with a view to reaching a
common approach to combat money laundering and financial crime (see also recommendation in
chap. I).(...)
The high-level event should consider setting up an
ad hoc forum to bring together representatives of Governments, international
organizations, business, labour and NGOs in order to facilitate a dialogue on policy and
technical assistance issues relating to foreign direct investment. The objective should be
to facilitate such flows to developing countries - especially least developed countries -
and to identify obstacles and examine best practices as regards government policies for
maximizing the contribution of FDI to development and minimizing any negative
effects."
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Joint Statement of the Co-Chairmen
at the Conclusion of the First Part of the
Third Session of the Preparatory Committee
United Nations, 8 May 2001
" II. Foreign direct investment and other private
flows
There was broad consensus among speakers that foreign direct
investment (FDI) and other long-term private flows can have a strong positive impact on
development, including through transfer of technology, employment, national capacity
building (human and institutional), diversification of the production base, development of
well-functioning infrastructure, and entrepreneurial capacity.4/ Thus, measures to promote
such flows are desirable, within an appropriate policy framework. There was also wide
recognition that developed and developing countries, and also the international community,
may contribute to expanding long-term private flows and extending them to all developing
countries, including least developed, land-locked and small-island developing States.
Source-country policies: there is much that home countries can do
to promote private investment flows to developing countries, including opening their own
markets (because investment flows are attracted by export opportunities back to the home
country, as well as access to the host-country market and exports to third countries),
disseminating information on investment opportunities in developing countries and
providing technical assistance to developing countries to help them strengthen their
capacity to better oversee these flows. Host-country policies: Host countries can promote
long-term capital flows, including FDI, through: a stable macroeconomic environment and
adequate infrastructure; domestic regulatory framework that is encouraging to investment,
does not discriminate between domestic and foreign investment, and is characterized by
stability, transparency and predictability; and by allowing for easy exit. International
policies: Official development assistance (ODA) can be a catalyst for FDI to developing
countries through technical assistance to increase national human and institutional
capacity and support infrastructure investment. Other instruments of cooperation include
investment guarantees and private/public partnerships. Multilateral development
institutions, including regional banks, could take actions in support of long-term private
flows at the regional level. Regional groupings can also help promote FDI.
Towards policy priorities
On steps to enhance the development impact of long-term private
flows, as FDI and other long-term private flows can have adverse as well as positive
effects on development, warranting development of national and international policies to
maximize the positive and minimize the negative impacts, the following were proposed:
Assessments of the impact of FDI on development in developing
countries should be carried out, including impact on transfer of technology, development
of indigenous research, acquisitions (competition), and environmental and social effects.
The results of the assessments should be used to devise domestic and international
policies to increase development-augmenting FDI and spread it to countries that have not
yet received significant inflows. Implications of the assessments should be drawn as well
for consideration in devising codes of conduct, particularly regarding socially and
environmentally responsible investment activities. They could also be compiled as an
inventory of best practices.
Involving the business sector more deeply in the FfD process. In
the light of the dialogue with business interlocutors on 2 May 2001 and the part of the
draft resolution pertaining to engagement with the business sector that the Prep Com has
today recommended for adoption by the General Assembly, it is clear to us a consensus
exists that dialogue with the business sector can be an important means for strengthening
the positive role of FDI. The FfD Secretariat can have an important function, in this
regard, in maintaining and expanding contacts with interlocutors for the business sector.
Among the issues that should be discussed with the business sector are the following:
Looking more closely into the issue of risk and what determines
perceptions of risk; Examining how business could be encouraged to act in socially and
environmentally responsible ways; Exploring ways to build on experiences in public/private
partnerships, including development of appropriate "rules of engagement", and
investigating the potential for public/private partnerships in general.
Exploring the usefulness of bilateral and international
investment agreements in promoting the flow of FDI and in enhancing its development
impact. There has been considerable interest in such agreements and considerable
controversy. In this light, many countries support holding hearings on international
investment agreements to investigate them more thoroughly and in an open and participatory
manner.
Assessing volatility of international capital flows and
effectiveness of policy tools to mitigate it. There has been considerable focus on the
volatility of short-term capital flows, but it has also been argued that long-term flows,
even FDI and portfolio investment, can become highly volatile. Several policy proposals to
mitigate financial volatility may be studied, including on the relative costs and benefits
of small and open stock markets in developing countries.
Enhancing technical assistance for national capacity building
with respect to policy making regarding private international flows: Among the specific
foci of technical assistance in this regard are human and institutional capacity building,
entrepreneurship, networking, investment promotion, tax constraints, improving corporate
tax structures, business law, and better data collection, especially in least developed
countries."
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High-Level
Panel on
Financing for Development -
Recommendations & Technical Report
United Nations, A/55/1000, 26 June 2001
Recommendations:
" Private capital flows
The bulk of savings will come from domestic resources, but
foreign capital can provide a valuable supplement to finance investment and growth. Again
the primary responsibility to tap the vast pool of funds available in the forms of foreign
direct investment, portfolio investment, and bank loans, lies with developing countries
themselves.
Actions by developing countries
Foreign direct investors, just like domestic investors, want
assurance of political stability, knowledge that the rule of law prevails—so that
there will be long-term stability of rules and procedures—and freedom from
corruption. In addition, foreign investors expect a commitment to be treated no less
favorably than domestic investors, as well as provisions for free transfer of capital,
profits, and dividends, guarantees against expropriation of their assets, and binding
arbitration of disputes. It is in host countries’ interest to provide these
conditions.
Foreign investors should not be exempted from domestic laws
governing corporate and individual behavior, however; nor should the authority of domestic
courts, tribunals, and regulatory authorities over foreign investors and their enterprises
be curtailed. By the same token, we advise against the use of costly and discretionary
investment incentives and eroding labor and environmental standards in a “race to the
bottom”.
To attract other forms of foreign capital besides direct
investment, progressively more developing countries have been liberalizing their capital
accounts in recent years. The long-term trend still ought to be to further liberalize
capital flows, but the experience of financial crises has shown that countries should only
introduce liberalization measures in appropriate circumstances: that is, when they have
sound macroeconomic fundamentals, a healthy domestic financial system, and an effective
system of prudential supervision. In very special circumstances, temporary taxes may need
to be imposed on capital inflows, to moderate the destabilizing effects of volatile
capital movements.
Actions by industrial countries
Industrial countries have an important role in facilitating
private capital flows into developing countries. In cooperation with pertinent
multilateral public institutions and private organizations—such as chambers of
commerce and industry—these countries should enhance the flows of information on
investment opportunities in developing countries, insurance schemes, and market access
provisions.
The industrial countries should also consider more systematic
discipline of their own competitive tax concessions, which sometimes unfairly and
artificially erode developing countries’ relative attractiveness to foreign
investment.
In the discussions on a new international financial architecture,
an important outstanding issue concerns how to prevent private lenders from calling in
their capital if confidence erodes. For this purpose, bonds should have collective action
clauses that permit a qualified majority of bondholders to approve changes in their
payments clauses. Major industrial countries should join Canada and the UK in introducing
such clauses into the bonds they issue, to ease the way for the adoption of these clauses
in bonds issued by emerging markets.
Industrial countries still impose some important impediments to
foreign investment by some categories of investors among their nationals; it is important
that they remove artificial constraints that prevent investments into emerging markets.
Actions by international community
In countries that have not had time to build up a credible track
record, many potentially viable infrastructure investment projects do not get financed by
the private sector because their returns are subject to government and regulatory risk.
The multilateral development banks should be enabled to increase their role in helping
their client countries attract FDI, through cofinancing and by providing guarantees.
New proposals for determining banks’ minimum capital
requirements are under discussion in the Basel Committee on Banking Supervision. Care is
needed to make sure the new rules do not make international bank loans prohibitively
expensive to most developing countries."
Technical Report:
" 3- Private Capital Flows
The bulk of the saving available for a country’s investment
will always come from domestic sources, whether that country is large or small, rich or
poor. But foreign capital can provide a valuable supplement to the resources a country can
generate at home. Nowadays, large sums of capital cross national borders in the form of
foreign direct investment (FDI), and the international capital markets constitute a
further vast pool of funds on which countries can draw. For the world’s middle-income
countries, the potential of these resources far exceeds what will conceivably be available
from public sector resources. And even poor countries can hope to draw on FDI, although on
average they attract less of it (relative to GDP) than middle-income countries. The extent
to which FDI bypasses smaller and poorer countries is often exaggerated; many countries
that are either small or poor, or both, have high ratios of FDI inflows to GDP[11] .
Foreign Direct Investment
The dramatic expansion of FDI into developing countries during
the past decade is due in part to the improvements in the climate for investment that many
of these countries have achieved. In a growing number of countries, a long-held suspicion
of foreign investors has been replaced by a welcoming attitude, as countries became more
aware of the access to markets and modern technology, as well as capital, which FDI
brings. Another attraction is that flows of FDI are less susceptible to sudden reversal
than flows of short-term portfolio capital, as the Asian crises recently demonstrated.
FDI may be attracted by several factors: the opportunity to
develop natural resources, the attractiveness of a country as an export platform, or the
wish to produce locally as the most profitable way to supply that country’s domestic
market with the particular products that a multinational sells worldwide. But in every
case the investment climate is also a major factor in deciding whether to invest.
Investors want political stability. They want assurance that the rule of law prevails, so
that the rules and procedures governing their operations will be stable and predictable,
and freedom from corruption. They seek skilled work forces and efficient infrastructure.
They also need assurance that their investments will be safe against arbitrary
expropriation, and they value an international mechanism for settling disputes with host
governments, such as that provided by the International Center for the Settlement of
Investment Disputes at the World Bank.
FDI is also more likely to take place when the host government is
prepared to make a commitment to national treatment, that is, to treating foreign
investors and their investments no less favourably than domestic investors. Other
important conditions include transparency in government policy; provisions for the free
transfer of capital, profits, and dividends; willingness to allow temporary residence for
key personnel; and the absence of performance requirements. Of course, in extreme
circumstances, countries may need to make exceptions to protect their national security,
to safeguard the integrity and stability of the financial system, or to respond to a
balance of payments crisis. And national treatment does not mean special treatment:
foreign investors should not be exempted from domestic laws governing corporate and
individual behaviour, nor should the authority of domestic courts, tribunals, and
regulatory authorities over foreign investors and their enterprises be curtailed.
Developing countries will need to continue to improve their
attractiveness to FDI. This includes upgrading accounting and auditing standards and
improving transparency, corporate governance, and the efficiency and impartiality of their
administration, as well as their physical infrastructure. Actions like these, which will
benefit the domestic private sector as well as foreign investors, are the right way to
compete for FDI. The wrong way is to hand out tax concessions or erode domestic social or
environmental standards in a race to the bottom. One of the roles that an International
Tax Organisation could play is in disciplining competitive tax concessions, which end up
mainly benefiting foreign investors rather than the host countries. These disciplines
would need to apply to industrial as well as developing countries, since many industrial
countries are now also engaged in tax competition to attract FDI.
The primary obligations of foreign investors, as of domestic
corporations, are to obey the law and be economically effective. But there is also a
widespread view that they have a responsibility to behave as good corporate citizens of
the countries in which they invest. Those responsibilities are laid out in the Global
Compact sponsored by the Secretary-General, to which companies are invited to subscribe.
The Compact’s nine principles include two dealing with human rights, calling on
businesses to support and respect the protection of internationally proclaimed human
rights and to make sure they are not complicit in human rights abuses. Four of the
principles deal with labour standards, calling for upholding freedom of association and
the right to collective bargaining, as well as eliminating forced labour, child labour,
and discrimination. Three deal with environmental issues, calling for businesses to adopt
a precautionary approach to environmental challenges, to undertake initiatives to promote
greater environmental responsibility, and to encourage the use of environmentally friendly
technologies.
The multilateral development banks (MDBs; these include the World
Bank and the regional development banks) have for some time played a role in attracting
FDI to developing countries through co-financing, through investment guarantees, and
through the sponsorship of the International Center for the Settlement of Investment
Disputes. Their contribution has been valuable, and there is a good case for enabling the
MDBs to increase their catalytic role[12] . Many potentially viable infrastructure
investment projects fail to get private sector financing because their returns are subject
to political and regulatory risk—still often perceived as high in emerging markets
that have not had time to build a credible track record. MDBs can provide partial risk
guarantees to investors that will safeguard them against a host government reneging on
pricing or performance agreements, as well as against expropriation and currency
inconvertibility.
Portfolio Investment
Besides FDI, developing countries today can hope to benefit from
inflows of portfolio capital from world capital markets. Without these flows, governments
and the local private sector would not be able to reduce their cost of capital by tapping
private foreign savings. It is for this reason that progressively more developing
countries have been liberalising their capital account in recent years. But this has
proved to be a mixed blessing. Although the infusion of capital in good years was quite
substantial, in all too many cases the boom years soon gave way to a bust, marked by
currency or banking crises, or both. Countries with large foreign debts, particularly
short-term debts and private sector debts denominated in foreign currencies, proved
vulnerable to crises, as herds of investors fled in panic. No one can claim that private
financial institutions distinguished themselves by this boom-bust behaviour.
Recognition of the susceptibility of borrowing countries to
financial crises led to international discussions to redesign the international financial
architecture in ways that would reduce this vulnerability. One outcome has been an effort
to strengthen financial systems in emerging markets. Another has been the design of
standards and codes intended to codify best practice and improve transparency in a number
of relevant areas: data provision, prudential regulation and supervision of the banking
system, accounting standards, corporate governance, and more. This is a welcome
initiative, which should help emerging markets reduce the gap between their systems’
present performance and best practice. There is, however, concern that developing
countries are not being adequately involved in the design of these standards. And it is
important that the IMF’s Reports on Standards and Codes recognise that rapid
implementation of these codes can be difficult and costly, and not make unreasonable
demands about the speed of implementation. Abundant and efficient technical assistance is
also called for, to help countries build the capacity to implement these codes.
The experience of financial crises has also led to a
reconsideration of appropriate macroeconomic policies. The dangers of insecurely pegged
exchange rates are now widely recognised. And although the long-term trend ought to
continue to be towards progressive liberalisation of capital movements, it is important
that liberalisation be phased in, and then only in appropriate circumstances.
Liberalisation can safely proceed only gradually in pace with the capacity of the domestic
financial system and when there is no serious macroeconomic disequilibrium, financial
institutions are solvent, and an effective system of prudential supervision is in place.
There may be occasions during capital surges when the introduction of temporary capital
inflow taxes proves to be part of the least-bad policy mix. But some other forms of
capital controls are unambiguously counterproductive, such as those that privilege
short-term over long-term borrowing. And there is some evidence that controls intended to
prevent capital outflows often have the opposite effect, of limiting net inflows, because
investors are more willing to bring money into a country when they believe they will be
able to take it out again when and how they choose.
These and other reforms can hope to reduce the frequency and
severity of financial crises, but it would be unrealistic to suppose that they can
eliminate crises entirely. Accordingly, the discussions of a new international financial
architecture have also considered how to improve present arrangements for crisis
resolution. For its part, the IMF has streamlined its emergency facilities, abolishing a
number of windows that were little used while introducing two new facilities. One of these
is the Supplementary Reserve Facility, which is designed to lend large sums quickly at
high interest rates for relatively short periods. The other is a Contingent Credit Line,
which allows preapproved countries to draw on emergency financing when a crisis strikes
via contagion from other countries. Although the objective of this facility, of making
substantial sums pre-emptively available to countries threatened by contagion, makes a
great deal of sense, the fact is that no country has yet chosen to apply for this line of
credit.
The most important outstanding issue in the discussions on a new
international financial architecture concerns how to ‘bail in’ the private
sector, that is, to secure the participation of private creditors in resolving crises by
extending debt maturities. Everyone agrees that there could be circumstances when this
would be necessary, given the massive amounts of foreign credit that can be withdrawn and
the incentives for private creditors to run for the exits once confidence erodes. Keeping
a lid on moral hazard also depends on the private sector knowing that it may be bailed in
rather than bailed out. Some helpful elements of a solution can be delineated. Bonds ought
to have collective action clauses, permitting a qualified majority of bondholders to
approve changes in the payments clauses. Most bonds issued in London already have such
provisions, but bonds subject to New York law do not. Other major industrial countries
ought to join Canada and the United Kingdom in introducing such clauses into the bonds
they issue, to ease the way for their adoption by emerging markets.
Important as it is to reduce the frequency and the costs of
crises, it would be a Pyrrhic victory if crises were eradicated by killing the capital
flows that create them. These flows can benefit both developing and developed countries:
borrowing by developing countries allows them to accelerate their development, and lending
by developed countries allows their citizens to place part of their savings in
high-yielding assets and diversify their portfolios. Both therefore have an interest in
allowing private investors in the developed countries to invest in emerging markets where
the investors find that to their advantage.
Yet despite the liberalisation and globalisation of recent years,
industrial countries still impose some quite important impediments to such investment. For
example, many insurance companies in the United States are not free to invest in emerging
market debt, because many of the individual states that regulate them prohibit this.
Similarly, pension funds in many Continental European countries are effectively prohibited
from buying emerging market equities. The draft Pensions Directive that has been presented
by the European Commission to the European Parliament would change this, but has yet to be
voted on. It is important that industrial countries remove such artificial constraints on
investment in emerging markets, especially where the investors in question can be expected
in their own self-interest to take a long-term view. And there is a danger that the new
proposals for determining banks’ minimum capital requirements, now under discussion
by the Basle Committee on Banking Supervision, will make even bank loans prohibitively
expensive to all but the most creditworthy developing countries[13] .
Private capital cannot be expected to finance poverty reduction
or human development directly. Nonetheless, it can be an important factor in promoting
growth—or in precipitating crises. That is why it is important to achieve a
substantial inflow of private capital, with much but not all of it in the form of FDI, to
developing countries; and why it is important to reduce the crisis vulnerability of the
system."
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FfD-Themes
United Nations, 09/17/01
" Mobilizing international private resources for
development
11. Foreign direct investment and other private flows are a vital
complement to national development efforts of developing countries and countries with
economies in transition, particularly for enhancing technology transfer, and boosting
overall productivity, competitiveness and entrepreneurship. A central challenge is to
attract these flows to a much larger number of countries, including low-income countries,
SIDs, and landlocked developing countries.
12. We call on the multilateral financial and development
institutions to deepen their support to national efforts to improve the investment
climate, upon request, in priority areas such as policy and regulatory frameworks,
corporate governance, and competition policy.
13. We request the Secretary General to explore, with the support
of all relevant stakeholders, possible avenues to strengthen international cooperation in
the promotion of foreign direct investments in developing countries and countries with
economies in transition, including through investment agreements.
14. We commit to implement measures that will encourage foreign
direct investments in a greater number of developing countries, particularly in low-income
countries, SIDs, and landlocked developing countries. Measures of this type include the
removal of artificial domestic constraints and tax concessions in industrial countries
that prevent or discourage investments into developing countries.
15. We call on the multilateral and bilateral financial and
development institutions to redouble their efforts in support of private investments in
infrastructure development and other priority areas for developing countries, such as
information and telecommunication projects to bridge the digital divide. Such support
includes strengthening export-credit, risk-guarantee, and co-financing mechanisms, and
promoting long-term private flows to support sub-regional and regional projects with high
development impact.
16. We urge the business sector to consider not only the
financial but also the social and environmental implications of their enterprises and
encourage civil society organizations to help ensuring adequate attention to these
aspects. In this regard, we request the World Bank Group and regional development banks,
through their private sector activities, to promote socially and environmentally
responsible investments and foster good corporate citizenship.
17. To ensure enhanced and predictable financial flows to
developing countries and countries with economies in transition, a stable international
financial system is also crucial. We call on the multilateral financial institutions to
deepen their support to the development of appropriate regulatory frameworks to help
sustain sufficient—and sufficiently stable—private flows to these countries,
including through:
Measures in source and destination countries to increase the
transparency of financial flows and to contain the excessive volatility of short-term
capital flows and of highly leveraged transactions, including trade in currencies;
Measures to ensure orderly, gradual and well sequenced capital account liberalization
processes; Safeguards to ensure that the new Basel capital accord does not increase
pro-cyclicality of bank lending, and that it does not make bank loans prohibitively
expensive to these countries; Measures to improve sovereign risk assessment, based on
transparent procedures and on well-disclosed economic criteria."
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United Nations,12/06/01
"Mobilizing international resources for development: foreign
direct investment and other private flows
18. Private international capital flows, particularly long-term
flows, as well as international financial stability, are a vital complement to national
development efforts. Foreign direct investment contributes toward financing development in
the long term, in a more stable and orderly fashion than portfolio investment. And foreign
direct investment is especially important for its potential to transfer knowledge, skills,
and technology, create jobs, boost overall productivity, enhance competitiveness and
entrepreneurship, and ultimately reduce poverty through economic growth and development. A
central challenge therefore is to attract direct investment flows to a much larger number
of developing and transition countries.
19. To attract stable inflows of capital, countries need to
continue their efforts to achieve transparent, stable, and predictable investment
climates, embedded in sound macroeconomic policies and institutions that allow businesses,
both domestic and international, to operate efficiently and profitably and with maximum
development impact. Special efforts are required in such priority areas as economic policy
and regulatory frameworks for promoting and protecting investments, including avoidance of
double taxation; corporate governance and accounting standards; and competition policy.
These efforts can be enhanced through technical assistance for capacity building as
requested by recipients, including the actions envisaged in the Doha Ministerial
Declaration.
20. To complement national efforts, we call on the international
financial and development institutions to increase their support for private foreign
investment in infrastructure development and other priority areas, including projects to
bridge the digital divide. This support includes provision of export credits, risk
guarantees, cofinancing, and leverage of aid resources and venture capital, as well as
provision of information on investment opportunities. We will strengthen the multilateral
financial and development institutions to perform these tasks.
21. While Governments provide the framework within which
businesses operate, firms, for their part, have a responsibility to engage as reliable and
consistent partners in the development process. We urge firms to consider, in the spirit
of good corporate citizenship, not only the economic and financial but also the social and
environmental implications of their undertakings.
22. We underscore the need to sustain sufficient and stable
private flows of all types to developing and transition countries. In this regard, it is
important to design measures, in source and recipient countries, to increase the
transparency of financial flows and to contain the excessive volatility of short-term
capital flows and of highly leveraged transactions, including trade in currencies; to
ensure orderly, gradual, and well-sequenced processes for liberalizing capital flows; and
to improve sovereign risk assessment, based on transparent procedures and on
well-disclosed, objective economic criteria. Multilateral financial institutions could
provide further assistance for these purposes."
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Draft outcome of the International Conference on Financing for
Development
-Monterrey Consensus
Mobilizing international resources for development: foreign
direct investment and other private flows
20. Private international capital flows, particularly foreign
direct investment, along with international financial stability, are vital complements to
national and international development efforts. Foreign direct investment contributes
toward financing sustained economic growth over the long term. It is especially important
for its potential to transfer knowledge and technology, create jobs, boost overall
productivity, enhance competitiveness and entrepreneurship, and ultimately eradicate
poverty through economic growth and development. A central challenge, therefore, is to
create the necessary domestic and international conditions to facilitate direct investment
flows, conducive to achieving national development priorities, to developing countries,
particularly Africa, least developed countries, small island developing States, and
landlocked developing countries, and also to countries with economies in transition.
21. To attract and enhance inflows of productive capital,
countries need to continue their efforts to achieve a transparent, stable and predictable
investment climate, with proper contract enforcement and respect for property rights,
embedded in sound macroeconomic policies and institutions that allow businesses, both
domestic and international, to operate efficiently and profitably and with maximum
development impact. Special efforts are required in such priority areas as economic policy
and regulatory frameworks for promoting and protecting investments, including the areas of
human resource development, avoidance of double taxation, corporate governance, accounting
standards, and the promotion of a competitive environment. Other mechanisms, such as
public/private partnerships and investment agreements, can be important. We emphasize the
need for strengthened, adequately resourced technical assistance and productive
capacity-building programmes, as requested by recipients.
22. To complement national efforts, there is the need for the
relevant international and regional institutions as well as appropriate institutions in
source countries to increase their support for private foreign investment in
infrastructure development and other priority areas, including projects to bridge the
digital divide, in developing countries and countries with economies in transition. To
this end, it is important to provide export credits, co-financing, venture capital and
other lending instruments, risk guarantees, leveraging aid resources, information on
investment opportunities, business development services, forums to facilitate business
contacts and cooperation between enterprises of developed and developing countries, as
well as funding for feasibility studies. Inter-enterprise partnership is a powerful means
for transfer and dissemination of technology. In this regard, strengthening of the
multilateral and regional financial and development institutions is desirable. Additional
source country measures should also be devised to encourage and facilitate investment
flows to developing countries.
23. While Governments provide the framework for their operation,
businesses, for their part, are expected to engage as reliable and consistent partners in
the development process. We urge businesses to take into account not only the economic and
financial but also the developmental, social, gender and environmental implications of
their undertakings. In that spirit, we invite banks and other financial institutions, in
developing countries as well as developed countries, to foster innovative developmental
financing approaches. We welcome all efforts to encourage good corporate citizenship and
note the initiative undertaken in the United Nations to promote global partnerships.
24. We will support new public/private sector financing
mechanisms, both debt and equity, for developing countries and countries with economies in
transition, to benefit in particular small entrepreneurs and small and medium-size
enterprises and infrastructure. Those public/private initiatives could include the
development of consultation mechanisms between international and regional financial
organizations and national Governments with the private sector in both source and
recipient countries as a means of creating business-enabling environments.
25. We underscore the need to sustain sufficient and stable
private financial flows to developing countries and countries with economies in
transition. It is important to promote measures in source and destination countries to
improve transparency and the information about financial flows. Measures that mitigate the
impact of excessive volatility of short-term capital flows are important and must be
considered. Given each country’s varying degree of national capacity, managing
national external debt profiles, paying careful attention to currency and liquidity risk,
strengthening prudential regulations and supervision of all financial institutions,
including highly leveraged institutions, liberalizing capital flows in an orderly and well
sequenced process consistent with development objectives, and implementation, on a
progressive and voluntary basis, of codes and standards agreed internationally, are also
important. We encourage public/private initiatives that enhance the ease of access,
accuracy, timeliness and coverage of information on countries and financial markets, which
strengthen capacities for risk assessment. Multilateral financial institutions could
provide further assistance for all those purposes.
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