Private Capital Flows and Development

The Role of National and International Policies

image of Private Capital Flows and Development

This paper considers the new forms and roles of private capital flows to developing countries in the 1990s and appropriate national and international policy responses to the problems and possibilities they create. Section 2 describes the growth of these flows in the 1990s, their role in development and some of their effects in recipient countries. Section 3 considers alternate capital account policies for developing countries. In section 4 the possibility of improved international arrangements is considered. Section 5 contains recommendations from the previous analysis.



The Growing Role of Private Capital Flows to Developing Countries in the 1990s

Private capital flows to developing countries, after slumping in the 1980s, increased dramatically, and to unprecedented levels, in the first half of the 1990s. According to the IMF, net private flows in the 1989+95 period were, on average, about ten times those of the 1983+88 period, whereas net official flows had fallen by more than half (see Table 1). According to the World Bank, between 1990 and 1993, private capital flows to developing countries rose nearly fourfold before stabilizing at about $160+170 billion in 1994+95 as United States interest rates rose and the Mexican crisis hit (World Bank, 1996, pp. 10-11).


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