DOCSLIB.ORG

Guidelines for Foreign Exchange Reserve Management -- Part II

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Guidelines for Foreign Exchange Reserve Management -- Part II II COUNTRY CASE STUDIES 1 Australia Governance and Institutional movements in exchange rates, relative returns in Framework bond markets, and changes in the level and slope of yield curves. These changes were set in place in Objectives of reserves management 1991. 156. Australia’s foreign currency reserves are 158. Experience with active management was managed by the Reserve Bank of Australia (RBA). reviewed in 2000 after nine years of operation. The At the end of June 2002, the gross value of the review highlighted the fact that short-term invest- reserves portfolio was US$20 billion, representing ment decisions designed to take advantage of mar- around half of the central bank’s assets. The pri- ket anomalies had consistently made positive mary role of the reserves portfolio is to fund for- returns, albeit small. In contrast, investment posi- eign exchange market operations that arise as part tions taken in anticipation of medium-term of the Bank’s broader monetary policy function. macroeconomic developments had made positive Reflecting this, the reserves are managed in a man- returns of reasonable size in some years, but these ner that gives priority to low levels of credit risk, had been largely offset by negative returns in other limited exposure to market risk, and maintaining a years, leaving only a small positive return from this high degree of liquidity. Subject to these objectives, activity overall. The RBA decided that the low aver- the Bank also seeks to earn a positive return on the age, and high variability, of returns did not warrant portfolio. taking investment positions of the same size and 157. In 1990, the Bank undertook a formal frequency as in the past. As a result, management review of its approach to foreign exchange reserves discretion was curtailed, significantly reducing the management. The outcome of the review was the importance of discretionary management as a establishment of a rigorously defined operational source of return for the reserves portfolio. framework for managing risk and return. The cen- terpiece of the framework was the development Institutional framework and implementation of benchmark portfolios for currency and asset allocation, and for the duration 159. The RBA’s responsibility to manage of the asset portfolios. The benchmarks are Australia’s foreign exchange reserves is given intended to represent the optimal mix of risk and through broad legislative powers that allow the return for the RBA given its management objec- Bank to buy, sell, and otherwise deal in foreign tives. The review also provided a greater role for exchange (among other things) to achieve mone- active management to take advantage of expected tary policy objectives. Responsibility is not shared 35 36 GUIDELINES FOR FOREIGN EXCHANGE RESERVE MANAGEMENT: ACCOMPANYING DOCUMENT Figure 1. Organizational Structure Governor Assistant Governor Assistant Assistant Governor Financial Markets Group Governor Corporate Services Audit Head of International Department Dealing Payments Financial Support Settlements Administration Front Office Analysis (Middle Office) Department Department (Back Office) New York London Sydney Dealing Dealing Dealing Center Center Center with other government agencies, reflecting the in New York, London, and the Bank’s Head Office role of reserves as a source of intervention capital. in Sydney. These centers execute trades and have The RBA acts independently in its management small discretion for position taking. The RBA has decisions. found considerable informational benefit in locat- ing dealing staff in major offshore centers. The front office is also supported by an analytical group Organizational and decision-making structure with responsibility to provide in-depth analysis of 160. The organizational structure of reserves international financial and macroeconomic devel- management at the RBA is summarized in Figure 1. opments that may impact on the value of the Responsibility for management of reserves is dele- reserves portfolio. gated by the Governor of the Bank to the Financial 162. Also part of the Financial Markets Group, Markets Group (FMG). This group comprises two but not within the International Department, is a departments, International and Domestic Markets. middle office function, known as Dealing Support. The International Department is responsible for This unit is responsible for measuring risk and the Bank’s front office operations in markets for return and for maintaining front office systems. foreign exchange, gold, and offshore assets. Valuation, performance, and risk information are 161. The International Department front provided to the front office operation and to office manages the currency and asset allocation senior management on a daily basis. The middle positions of the portfolio, and directs policy issues office reports directly to the Assistant Governor regarding investment of reserves, such as assessing overseeing the Financial Markets Group. instruments and the structure of the benchmarks. 163. There are several other areas outside of It is supported by three dealing centers: one each the Financial Markets Group that provide services 1 • Australia 37 to, or scrutinize the actions of, the front office sion making unwieldy and, therefore, poorly suited reserve management operation. These include the to a more active risk management framework. It back office (Payments Settlements) and account- also constrained initiative at manager levels. With ing (Financial Administration) functions. The back the move to more active management in the early office provides standard settlement and communi- 1990s, the Governor’s discretion for day-to-day cation services to the reserves management front management of reserves was delegated to an office and is responsible for the final approval of all Investment Committee within the Financial transactions—dealers in the front office cannot Markets Group. The Committee, made up of confirm trades. There are back office operations in senior managers from units involved in reserves each of the dealing centers, with Sydney having management, had discretion to take sizable posi- overall responsibility. The Audit Department is also tions in currency and asset allocation subject to outside of the Financial Markets Group. This limits approved by the Governor. The Investment department has a direct reporting line to the Committee met regularly and took positions Governor. largely based on assessments of the medium-term 164. The structure and delineation of responsi- macroeconomic outlook of countries in which the bilities in reserves management have evolved over reserves were invested. A small and qualified time as the nature of, and the RBA’s approach to, amount of trading discretion was delegated to reserves management has changed. Until the late managers in the trading centers. 1980s, the International Department was responsi- 167. The Investment Committee’s structure ble for both middle and front office functions. and its discretion to take positions changed fol- Indeed, front office staff performed many of the lowing the review in 2000. Senior managers over- middle office responsibilities. Importantly, the back seeing front office operations are now responsible office was also located in the International for day-to-day management of currency and asset Department, albeit with separate reporting lines to allocation, maintaining the portfolio close to the Assistant Governor, Financial Markets Group, benchmark. They report directly to the Assistant from those of the front office. This seemed to be a Governor of the Financial Markets Group. An out- reasonable structure, given the conservative limits line of the decision-making structure is shown in on risk and the lack of flexibility in the RBA’s invest- Figure 2. ment operations at the time. However, as the 168. Reflecting the more passive trading envi- approach to reserves management changed in the ronment, there are no longer any formal meetings early 1990s and the scale of the operation increased, to discuss investment strategy. In contrast, man- the Bank set in place a number of changes to reduce agers in the dealing centers have retained their operational risk and reflect best-practice in funds small amount of discretion to set short-term tacti- management. cal positions. These centers are also responsible for 165. Establishment of a middle office within the lending stock from the portfolio. Financial Markets Group, which reports indepen- dently to the corresponding Assistant Governor, was Transparency and accountability a major change that occurred in the mid-1990s. Separation of the back office function was com- 169. With the introduction of a more rigorous pleted in 1998 when the back office was physically approach to reserves management, where decision relocated to a different floor of the RBA’s Head making was delegated to a large extent, the RBA Office building and put under control of the needed to be confident that an adequate level of Assistant Governor, Business Services. control was being maintained and that its actions 166. Decision-making processes have also were properly accounted for in line with market evolved. In the early 1980s, almost every transac- best practice. This required a system where indi- tion in reserves management had to be approved viduals and operational units were fully aware of by higher management. While this maximized con- their delegated authorities, the risks, and the value trol over the management process, it made deci- added from their decisions.
Load more

Recommended publications
  • Investment and Globalization TABLE of CONTENTS
    Investment and Globalization TABLE OF CONTENTS INTRODUCTION ................................................................................................................................................................................... 2 WHAT ARE THE DIFFERENT KINDS OF FOREIGN INVESTMENT? ............................................................................................................ 3 DIFFERENCES BETWEEN PORTFOLIO AND DIRECT INVESTMENT ............................................................................................................ 5 WHY DO COMPANIES INVEST OVERSEAS? ............................................................................................................................................ 6 CONCERNS ABOUT SHIFTING PRODUCTION DUE TO FOREIGN INVESTMENT .......................................................................................... 6 WHY HAS FOREIGN INVESTMENT INCREASED SO DRAMATICALLY IN RECENT DECADES? ................................................................... 9 WHERE DOES FOREIGN INVESTMENT TAKE PLACE? ........................................................................................................................... 10 FACTORS INFLUENCING FOREIGN INVESTMENT DECISIONS .......................................................................................... 11 EFFORTS TO INCREASE INTERNATIONAL INVESTMENT ........................................................................................................................ 12 MEASURES TO INCREASE INTERNATIONAL INVESTMENT....................................................................................................................
    [Show full text]
  • Handbook on Securities Statistics
    HANDBOOK HANDBOOK ON SECURITIES STATISTICS • • • • • • • • • • • BANK FOR €• INTERNATIONAL SETTLEMENTS EUROPEAN CENTRAL BANK INTERNATIONAL MONETARY FUND EUROSYSTEM 2015 INTERNATIONAL MONETARY FUND © 2015 International Monetary Fund Cataloging-in-Publication Data Joint Bank-Fund Library Handbook on securities statistics/International Monetary Fund, Bank for International Settlements, European Central Bank.—Washington, D.C.: International Monetary Fund, 2015. pages ; cm. Includes bibliographical references. ISBN: 978-1-49838-831-3 1. Securities – Statistics – Handbooks, manuals, etc. 2. Securities – Information services. I. International Monetary Fund. II. Bank for International Settlements. III. European Central Bank. HG4515.3.H35 2015 Please send orders to: International Monetary Fund, Publication Services P.O. Box 92780, Washington, D.C. 20090, U.S.A. Tel.: (202) 623-7430 Fax: (202) 623-7201 E-mail: [email protected] Internet: www.elibrary.imf.org www.imfbookstore.org Contents Foreword ix Preface xi Abbreviations xv 1. Introduction 1 Objective of the Handbook 1 Scope of the Handbook 1 Securities as Negotiable Financial Instruments 1 Debt Securities, Equity Securities and Investment Fund Shares or Units 1 Use of Statistics on Securities for Policy Analysis 2 The Conceptual Framework 3 Presentation Tables 4 The Structure of the Handbook 7 2. Main Features of Securities 9 Debt Securities 9 Equity Securities 11 3. Financial Instruments Classified as Securities 15 Debt Securities 15 Equity Securities 15 Borderline Cases 19 Other Financial
    [Show full text]
  • International Investment Law: Understanding Concepts and Tracking Innovations © OECD 2008
    ISBN 978-92-64-04202-5 International Investment Law: Understanding Concepts and Tracking Innovations © OECD 2008 Chapter 1 Definition of Investor and Investment in International Investment Agreements* The definition of investor and investment is key to the scope of application of rights and obligations of investment agreements and to the establishment of the jurisdiction of investment treaty-based arbitral tribunals. This factual survey of state practice and jurisprudence aims to clarify the requirements to be met by individuals and corporations in order to be entitled to the treatment and protection provided for under investment treaties. It further analyses the specific rules on the nationality of claims under the ICSID Convention. As far as the definition of investment is concerned, most investment agreements adopt an open- ended approach which favours a broad definition of investment. Nevertheless recent developments in bilateral model treaties provide explanatory notes with further qualifications and clarifications of the term investment. The survey further reviews the definition of investment under ICSID as well as non-ICSID case-law for jurisdictional purposes. ∗ This survey was prepared by Catherine Yannaca-Small, Investment Division, OECD Directorate for Financial and Enterprise Affairs. Lahra Liberti, Investment Division, OECD Directorate for Financial and Enterprise Affairs prepared Section II of Part II and revised the document in light of the discussions in the OECD Investment Committee. This paper is a factual survey which does not necessarily reflect the views of the OECD or those of its member governments. It cannot be construed as prejudging ongoing or future negotiations or disputes arising under international investment agreements.
    [Show full text]
  • Foreign Direct Investment and Foreign Reserve Accumulation∗
    Foreign Direct Investment and Foreign Reserve Accumulation∗ Mengxue Wangy November 4, 2019 Download the latest version here Abstract Why do emerging market economies hold high levels of foreign exchange reserves? What is the optimal level of reserves, and do economies accumulate reserves in excess of this optimal level? I argue that foreign exchange reserves help emerging markets attract foreign direct investment. This incentive can play an important role when analyzing central banks' reserve accumulation. I study the interaction between foreign exchange reserves and foreign direct investment to explain the level of reserves using a small open economy model. The model puts the domestic entities and international investors in the same picture. The optimal level of the reserve-to-GDP ratio generated by the model is close to the level observed in East Asian economies. Additionally, the model generates positive co-movement between technology growth and the current account. This feature suggests that high technology growth corresponds to net capital outflow, because of the outflow of foreign exchange reserves in attracting the inflow of foreign direct investment, thus providing a rationale to the `allocation puzzle' in cross-economy comparisons. The model also generates positive co-movement between foreign exchange reserves and foreign debt, thus relating to the puzzle of why economies borrow and save simultaneously. ∗I am highly indebted to Stephanie Schmitt-Groh´e,Jesse Schreger and Mart`ınUribe for their invaluable guidance, support, and encouragement. I am grateful to Hassan Afrouzi, Andreas Drenik, Matthieu Gomez, Emilien´ Gouin-Bonenfant, Jennifer La'O, Giogia Piacentino, Laura Veldkamp, David Weinstein, Michael Woodford, Xiao Xu and all participants in Economic Fluctuations colloquium and Monetary colloquium in Columbia University for comments.
    [Show full text]
  • The Accumulation of Foreign Reserves
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics International Relations Committee Task Force Research Report The accumulation of foreign reserves ECB Occasional Paper, No. 43 Provided in Cooperation with: European Central Bank (ECB) Suggested Citation: International Relations Committee Task Force (2006) : The accumulation of foreign reserves, ECB Occasional Paper, No. 43, European Central Bank (ECB), Frankfurt a. M. This Version is available at: http://hdl.handle.net/10419/154496 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte.
    [Show full text]
  • INTERNATIONAL INVESTMENT AGREEMENTS: KEY ISSUES Volume I
    UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT INTERNATIONAL INVESTMENT AGREEMENTS: KEY ISSUES Volume I UNITED NATIONS New York and Geneva, 2004 ii International Investment Agreements: Key Issues Note UNCTAD serves as the focal point within the United Nations Secretariat for all matters related to foreign direct investment and transnational corporations. In the past, the Programme on Transnational Corporations was carried out by the United Nations Centre on Transnational Corporations (1975-1992) and the Transnational Corporations and Management Division of the United Nations Department of Economic and Social Development (1992-1993). In 1993, the Programme was transferred to the United Nations Conference on Trade and Development. UNCTAD seeks to further the understanding of the nature of transnational corporations and their contribution to development and to create an enabling environment for international investment and enterprise development. UNCTAD’s work is carried out through intergovernmental deliberations, research and analysis, technical assistance activities, seminars, workshops and conferences. The term “country” as used in this study also refers, as appropriate, to territories or areas; the designations employed and the presentation of the material do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. In addition, the designations of country groups are intended solely for statistical or analytical convenience and do not necessarily express a judgement about the stage of development reached by a particular country or area in the development process. The following symbols have been used in the tables: Two dots (..) indicate that data are not available or are not separately reported.
    [Show full text]
  • Globalization and the Geography of Capital Flows1
    Ninth IFC Conference on “Are post-crisis statistical initiatives completed?” Basel, 30-31 August 2018 Globalization and the geography of capital flows1 Carol Bertaut, Beau Bressler, and Stephanie Curcuru, Board of Governors of the Federal Reserve System 1 This paper was prepared for the meeting. The views expressed are those of the authors and do not necessarily reflect the views of the BIS, the IFC or the central banks and other institutions represented at the meeting. Globalization and the Geography of Capital Flows Carol Bertaut, Beau Bressler, and Stephanie Curcuru1 This version: November 21, 2018 Abstract: The growing use of low-tax jurisdictions as locations for firm headquarters, proliferation of offshore financing vehicles, and growing size, number, and geographic diversity of multinational firms have clouded the view of capital flows and investor exposures from standard sources such as the IMF Balance of Payments and the Coordinated Portfolio Investment Survey. We use detailed, security level information on U.S. cross-border portfolio investment to uncover the extent of distortions in the official U.S. statistics. We find that roughly $3 trillion – nearly a third of U.S. cross border portfolio investment – is distorted by standard reporting conventions. Moreover, this distortion has grown significantly in a little over a decade. Expanding to consider global implications, we estimate that roughly $10 trillion – about one-fourth – of the stock of global cross-border portfolio investment is similarly distorted. Our results have implications for conclusions we draw about the factors influencing flows to emerging markets, trends in home bias, and the sustainability of the U.S.
    [Show full text]
  • The Role of Sukuk in Islamic Capital Markets
    The Role of Sukuk in Islamic Capital Markets COMCEC COORDINATION OFFICE February 2018 The Role of Sukuk in Islamic Capital Markets COMCEC COORDINATION OFFICE February 2018 This report has been commissioned by the COMCEC Coordination Office to the International Shari’ah Research Academy for Islamic Finance and RAM Rating Services Berhad. The report was prepared by Dr. Marjan Muhammad, Ruslena Ramli, Dr. Salma Sairally, Dr. Noor Suhaida Kasri and Irfan Afifah Mohd Zaki; while the advisors were Promod Dass, Rafe Haneef, Wan Abdul Rahim Kamil Wan Mohamed Ali and Assoc Prof Dr. Said Bouheraoua. The views and opinions expressed in the report are solely those of the author(s) and do not represent the official views of the COMCEC Coordination Office or the Member States of the Organization of Islamic Cooperation. The final version of the report is available at the COMCEC website.* Excerpts from the report can be made as long as references are provided. All intellectual and industrial property rights for the report belong to the COMCEC Coordination Office. This report is for individual use and shall not be used for commercial purposes. Except for purposes of individual use, this report shall not be reproduced in any form or by any means, electronic or mechanical, including printing, photocopying, CD recording, or by any physical or electronic reproduction system, or translated and provided to any subscriber through electronic means for commercial purposes without the permission of the COMCEC Coordination Office. For further information, please contact: The COMCEC Coordination Office Necatibey Caddesi No: 110/A 06100 Yücetepe Ankara, TURKEY Phone : 90 312 294 57 10 Fax : 90 312 294 57 77 Web : www.comcec.org *E-book : http://ebook.comcec.org ISBN : 978-605-2270-13-4 TABLE OF CONTENTS LIST OF TABLES v LIST OF CHARTS vii LIST OF FIGURES ix LIST OF BOXES x LIST OF ABBREVIATIONS xi EXECUTIVE SUMMARY 1 1.
    [Show full text]
  • The Strategic Asset Allocation of the Investment Portfolio in a Central Bank
    The strategic asset allocation of the investment portfolio in a central bank Marco Fanari and Gerardo Palazzo1 Abstract The balance sheets of central banks (CBs) have changed greatly since the financial crisis, due to the growth of domestic and foreign assets in response to economic and policy developments. As a result, the risks borne by CBs have increased, both quantitatively and qualitatively. Many CBs have begun or resumed dealing with less traditional assets, markets and counterparties that have significantly altered their risk profiles, raising important implications for the risk management of the CBs’ investment portfolio. The purpose of this paper is to describe the methodological aspects of a strategic asset allocation (SAA) framework that takes into consideration the perspective of a CB’s full balance sheet. Here we refer specifically to a hypothetical Eurosystem CB with no exchange rate policy and whose monetary policy actions reflect its contribution to the setting of monetary and financial conditions to maintain price stability over the relevant horizon. The financial risk profile of such a CB is therefore shaped by risks arising from a policy portfolio resulting from monetary policy operations and the domestic investment portfolio. In this setting, we argue that an effective SAA framework should have three main characteristics: (i) an integrated view of all CB assets and liabilities; (ii) a wide and detailed representation of the investment universe; and (iii) a tailored objective function and constraints. This is a completely different paradigm from the standard view, where foreign reserves and other investments are considered as isolated components of a CB’s balance sheet.
    [Show full text]
  • China's Foreign Exchange Reserves and Holdings of U.S. Securities
    USCC Economic Issue Brief No. 2 | March 21, 2014 China’s Foreign Exchange Reserves and Holdings of U.S. Securities Nargiza Salidjanova, Policy Analyst Persistent intervention in the exchange rate markets to keep the RMB undervalued has allowed China to Key Points accumulate the world’s largest reserves of foreign China pursues an exchange rate exchange, most of which is in U.S. dollars. By year- policy that keeps its currency end 2013, China had over $3.82 trillion in foreign undervalued. This requires China’s exchange reserves, nearly double the figure five central bank to purchase U.S. years earlier. A significant proportion of these dollars entering China’s economy, reserves is invested in U.S. Treasury securities resulting in massive foreign because Treasuries are seen as a safe investment; exchange reserves ($3.82 trillion by the end of 2013). are denominated in dollars; and constitute the only A significant portion, $1.3 trillion financial market base vast enough to accommodate as of December 2013, of China’s China’s surplus liquidity. To date, because China foreign exchange reserves was continues to undervalue its currency (and therefore invested in U.S. Treasury must purchase U.S. dollars), China’s efforts to securities. reduce its dependence on U.S. securities necessarily Official data does not fully account have been modest. for China’s holdings of U.S. securities due to constrained data U.S. Securities availability and significant time lags. This is compounded by China’s secrecy on the composition As China’s foreign exchange reserves have risen, so and allocation of its foreign have its holdings of U.S.
    [Show full text]
  • Static Portfolios
    Static Portfolios Unlike the Year of Enrollment Portfolios, Static Portfolios are not automatically reallocated to more conservative investments as the Beneficiary ages. Instead, Static Portfolio investments remain fixed, subject to periodic rebalancing back to the Portfolio guidelines and to any change by the Committee in the Portfolio investment guidelines. If you choose to invest in Static Portfolios that invest in Underlying Funds with a significant weighting in stocks, such as the Growth Portfolio and the Moderate Growth Portfolio, you should consider moving your assets to the more conservative Static Portfolios that invest more heavily in bond Funds and/or the Money Market Fund as your Beneficiary approaches college age. Please note that there are limitations on your ability to move assets from one Portfolio to another. (Please see Maintaining My Account in the Program Details Booklet) The Static Portfolios consist of the following seven (7) Portfolios, each of which invest in multiple Underlying Funds as shown in the table on the next page. 1 Static Asset Class Allocations 100% Cash Preservation 80% Bond Stock 60% 40% 20% 0% Cash Preservation Income Income & Growth Balanced Conservative Growth Moderate Growth Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Current Static Portfolio Underlying Fund Allocations (by percent) Cash Income Conservative Moderate Preservation Income & Growth Balanced Growth Growth Growth Fund Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Fidelity® Total Market Index Fund 0 0 10 13 16 21 25 Schwab Total Stock Market Index 0 0 10 13 16 21 25 Fund® Fidelity® International Index Fund 0 0 15 18 21 29 37 Fidelity® Emerging Markets Index 0 0 5 6 7 9 12 Fund TOTAL STOCKS 0% 0% 40% 50% 60% 80% 99% Fidelity® U.S.
    [Show full text]
  • Foreign Portfolio Investment and Sustainable Development a Study
    Foreign Portfolio Investment and Sustainable Development A Study of the Forest Products Sector in Emerging Markets October 1998 Maryanne Grieg-Gran, Tessa Westbrook, Mark Mansley, Steve Bass and Nick Robins International Institute for Environment and Development 1. Introduction 1.1 Background At the Rio Earth Summit in 1992 it was recognised that substantial financial transfers from the North to the South would be necessary for sustainable development to be achieved. It was assumed that much of these resources would be provided from public funds such as official development assistance. Somewhat less attention was given to the role of the private sector in these transfers, although Agenda 21 did stress the need for policies to increase the level of foreign direct investment (UNDPCSD 1997). However, in the last ten years there has been a marked increase in private capital flows to developing countries. Since 1986, these flows have grown from some US$25 billion per annum to over US$240 billion. At the same time official (public) flows have been declining in real terms such that by 1995 they accounted for less than 15% of aggregate net resource flows to developing countries compared with nearly 70% ten years earlier (World Bank 1997). The increase in private capital flows has generated an intense debate about their impacts on developing countries. Proponents emphasise the positive impacts of such flows on growth and industrial development while critics express concern about the growing power of large transnational corporations, repatriation of profits and increasing indebtedness on the part of developing countries. More recently, the environmental and social impacts of private capital flows have received increasing attention.
    [Show full text]