Acknowledgements


THE NEW PARADIGM OF INTERNATIONAL FINANCE



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THE NEW PARADIGM OF INTERNATIONAL FINANCE

The nature of capital flows between developed and developing countries changes considerably over time. In the 1970s, such flows were based largely on syndicated loans from commercial banks. In the 1980s, as this source of financing largely dried up following the Mexican crisis of 1982, official flows became relatively much more important. From the end of the 1980s, there has been a major growth of foreign direct and portfolio investment, which by the mid-1990s represented the majority of net capital flows to developing countries as a whole.


This transformation largely reflects a deliberate paradigm shift by the IMF and the World Bank. They have wrought this shift through several channels.
 Structural adjustment programmes (SAPs): the pro-market conditions attached to SAPS have included the liberalisation of foreign exchange and financial systems, the privatisation of state-owned enterprises, the development of stock exchanges and their opening up to foreign investors, and liberalisation of foreign investment regimes.
 Direct support for the private sector: the operations of the International Finance Corporation (which supports private sector projects in developing countries) and the Multilateral Investment Guarantee Agency (which guarantees foreign investors against certain risks involved in investing in low-income countries) - both part of the World Bank - have grown in recent years.
 Capital account liberalisation (CAL): the IMF is seeking to change its mandate to enable it systematically to pursue CAL in all its member countries.
 The Heavily Indebted Poor Country Debt Initiative - which, by reducing the debt overhang, will help to make the poorest countries more attractive to private capital.
Strategic use of research, conferences, training and high-profile publications.



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