World Bank Highlights Foreign Investment in Developing World
<a href=usinfo.state.gov>News from the Washington File 02 April 2003
(Workers' remittances another key source of finance, says new report) (2220)
An overall decline in private lending to developing countries has led these states to rely increasingly on foreign direct investment (FDI) and remittances from emigrant workers as sources of finance, according to a new World Bank report.
The new trend could foster a more stable environment in developing countries because FDI and remittances are less volatile than private lending, according to Global Development Finance 2003, the Bank's annual review of financial flows to developing countries.
"Over reliance on debt has been a problem for many countries," the report's lead author Philip Suttle said in an April 2 World Bank news release.
He expressed "cautious optimism" that capital flows to developing countries will be less volatile in the future.
"This would be good for growth and for poor people," Suttle said.
Remittances to developing countries totaled $80,000 million in 2002, up from $60,000 million in 1998. Net foreign direct investment dropped to $143,000 million in 2002, down from its 1999 peak of $179,000 million, but remains the dominant source of external financing for developing countries, the Bank said.
The report also projected that developing economies would grow faster in 2003 than in 2002, as the effects of recent financial difficulties -- including a period of sluggish growth in the industrialized world -- recede.
Developing economies are expected to grow 4 percent in 2003, up from 3.1 percent in 2002, assuming "a quick resolution to current tensions in Iraq," the Bank said. The global economy is expected to grow 2.3 percent, up from 1.7 percent in 2002.
Regarding regions and particular countries, the World Bank reported that:
-- China continued to make strong advances in output and helped the East Asia region's gross domestic product (GDP) grow by 6.7 percent in 2002.
-- Growth in Latin America and the Caribbean was held down by the government debt default and banking collapse in Argentina, uncertainty about Brazilian elections and worsening economic conditions in Venezuela.
-- Developing countries with close links to the Euro area were affected by slow European growth, but a sharp recovery of activity in Turkey and continued gains in Russia and the Commonwealth of Independent States [CIS] buoyed growth in Europe and Central Asia.
-- Continued strength in domestic demand in India propelled South Asia to GDP growth of 4.9 percent, despite disruptions associated with continued tensions around Afghanistan and between India and Pakistan.
-- Growth languished in both Sub-Saharan Africa and the Middle East and North Africa, with both regions registering growth rates of 2.6 percent in 2002.
The full World Bank report is available on the Internet at: www.worldbank.org
Following is the text of the news release:
(Note: In the text "billion" means 1,000 million.)
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-- At the other end of the growth spectrum, growth in Latin America and the Caribbean was held down by the government debt default and banking collapse in Argentina, uncertainty about Brazilian elections, worsening conditions in Venezuela, and an associated $31 billion falloff in financial market flows. GDP dropped by 0.9 percent in the year, a sharp 2.4 percent fall in per capita terms.
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