Global Development Finance 2001

1
Global Development Finance 2001

• Building Coalitions for Effective Development
  Finance

2
The context

• Global uncertainties in the short-term
• deceleration of growth
• emerging market crises
• heightened interaction between financial markets
  and real economy
• Strong medium-term prospects
• technology
• policy flexibility
• greater commitment to global challenges

3
This presentation covers

• The macro outlook
• Private capital flows
• Trends
• Implications for developing country growth
• Concessional resource transfers
• Trends and effectiveness
• Debt relief
• International public goods

4
Macro outlook

• Sharp slowdown
• Early recovery
• Important risks

5
Sharp slowdown in world GDP growth(percent
change)
Developing
World
Industrial
Source World Bank data and projections.
6
Cycle should be short-lived

• Interest rate reductions
• Anticipation of tax cut in U.S. and Europe
• Technology helps shorten inventory cycle

7
Diversity in regional growth performance
Source DECPG staff estimates.
8
Risk factors
United States
NASDAQ (rhs)
Percent
Delinquency rates (lhs)
Index
Japan
TOPIX (rhs)
Debt of failed businesses (lhs)
trillion
Index
9
Trends in capital flows

• Capital flows down relative to GDP
• Developing countries improve creditworthiness
• But lose share of global flows

10
Private capital flows in relation toGDP and trade
Thailand
Russia
Brazil
Crises
Mexico
Private capital flows/ Recipients exports
Private capital flows/ Recipients GDP
Note Private capital flows are net of
amortization.
11
Reduced external vulnerability
a. Short-term debt and total debt are as of
September 2000. Source Bank for International
Settlements, Global Development Finance Country
Tables and sources cited therein, IMF
International Financial Statistics and World Bank
staff estimates.
12
Developing countries lose share in international
FDI
FDI
Mergers and acquisitions
Note Top 10 refers to the developing countries
with the largest FDI (or MA) flows.
13
Private flows and growth

• Private capital flows reinforce growth
• Volatility has high costs
• No race to the bottom

14
Capital flows to GDP ratio (percent)
Top 10
Middle income
Low income
Refers to the ten developing countries with the
largest net capital flows. Note Capital flows
are net of amortization.
15
Growing divergence between middle and low income
countries(annual GDP growth rates)
Refers to the ten developing countries with the
largest net capital flows.
16
Capital flows volatility reduces growth
Note The regression line controls for other
determinants of growth
17
Pollution levels have fallen, while FDI has
increased Sao Paulo State, Brazil
18
More aid and more effective aid

• Slight rise in aid flows since 1997
• Better policy performance
• Better aid allocation

19
Aid has risen modestly since 1997
Net of technical cooperation grants.
20
Improved policy performanceover the 1990s
Source DECPG staff estimates.
21
Poor performers received less aid
Between 1992 and 1994, on average, poor
performers received more aid than better
performers...
...In 1998 poor performers are receiving less aid
than better performers.
Source OECD and World Bank.
22
The increasing coordination challenge
Note The Theil index in Panel C is a statistical
measure of the extent of concentration of aid by
sector. Higher values of the index indicate that
aid is spread over a greater number of
sectors. Source OECD Development Assistance
Committee.
23
The Heavily Indebted Poor Countries initiative

• A new start quicker pace, more relief
• Tie to policy reform key for success.
• Eventual cost of initiative 28.6 billion (net
  present value).

24
The declining HIPC debt burden
Note Ratios for 1998 and 1999 are debt service
paid to exports or revenue ratios for 2000
onwards are debt service due after HIPC
assistance to exports or revenue. Data refers to
the 22 HIPCs that reached decision points by
end-December. Source Country authorities and
World Bank/IMF staff estimates.
25
International public goods

• 5 billion a year of aid flows
• Growing trend
• But incentives more important than finance

26
Growing share of development assistance to
international public goods
27
Principles for public goods

• Complementarity
• Leverage
• Incentives for responsible action

28
The agenda

• Investment climate
• Volatility safeguards
• More aid better performers the poor
• More donor specialization coordination
• High leverage in public goods provision
• IFIs specialization, subsidiarity, convening
  role.

29
Risk factors
United States
Japan
Percent
trillion
Index
Index
NASDAQ (rhs)
TOPIX (rhs)
Debt of failed businesses (lhs)
Delinquency rates (lhs)
Note U.S. delinquency rate is measured as the
share of delinquent commercial and industrial
loans by commercial banks to total outstanding
loans. Source Datastream.