Discussion Forum

An e-discussion on "Recent Developments in Global Development Finance: Aid, Foreign Direct Investment, and Financing Trade and Infrastructure" was held from May 17 to June 11, 2004

There have been many recent changes in the external financing environment facing developing countries, including a recovery in the global economy, a shift in foreign direct investment from manufacturing to the service sector, the resurgence of strategic factors in determining aid flows, and an increase in donor pledges to finance development. There are also significant challenges the international community faces in enhancing the stability of financial flows to developing countries and in meeting the substantial infrastructure investment needs in the developing world.

The online discussion of this year’s Global Development Finance report focused upon four of these topics, and was an opportunity for policymakers, academics, and other interested parties to share views on important areas in financing development.

The discussion was hosted by DevForum--the World Bank's venue for electronic discussion and knowledge sharing about development issues. Since its inception in 1998, DevForum has hosted more than 500 e-discussions and working groups involving the participation of 100,000 subscribers.

Discussion Topics
Week 1 (May 17 to May 21, 2004): Will strategic or poverty-alleviation considerations be more important in determining aid flows to developing countries?

Since the tragic events of September 11, 2001, and in the light of recent international conflicts, strategic considerations have figured prominently in determining aid flows. However, pledges were made at the G8 summits in Kananaskis and Evian to spend at least 50 percent of new resources on Africa. Is the war on terrorism a blessing or a curse in terms of aid flows to developing countries? Do strategic considerations in allocation reduce the effectiveness of aid flows? What can the international community do to ensure pledges made to increase aid are met and new ones made?

Week 2 (May 24 to May 28, 2004) What will be the impact of a shift in foreign direct investment towards the service-sector?

FDI flows in services rose during the second half of the 1990s to overtake FDI in manufacturing. By 2002, services accounted for nearly half of the FDI stock in developing countries. However, in the past two years, much of the decline in FDI flows to developing countries is attributable to weaker service-sector FDI. Moreover, concerns have been raised in advanced economies about the impact of outsourcing on job opportunities at home, adding a political dimension. How will outsourcing concerns in advanced economies impact on FDI to developing countries? Has the move to the service-sector made FDI more volatile? Will the availability of political risk insurance and hedging tools enhance service-sector FDI flows?

Week 3. (May 31 to June 4, 2004): How can we enhance the stability of trade financing to developing countries?

Developing countries’ international trade is equivalent to about one-half of their gross national income; trade finance supplies the liquidity needed to conduct trade. Trade finance to developing countries increased strongly before the East Asian crisis, in response to the growth of developing countries’ international trade and in conjunction with their growing participation in the international financial system. It then fell sharply with the crisis but resumed its upward trend thereafter. In comparison to other forms of finance, how stable is trade financing to developing countries? Does trade financing enable marginalized countries to more successfully access international capital markets? How can the international community increase the resilience of trade financing during crisis?

Week 4. (June 7 to June 11, 2004): How can we best tap international capital markets to finance developing-country infrastructure?

Infrastructure needs in developing countries remain largely unmet – 1.1 billion people lack access to safe drinking water, 2.4 billion are affected by inadequate sanitation, and 1.4 billion have no power. Worldwide, future demand for infrastructure is likely to come mainly from the developing world. The challenge is to translate this demand into viable investment opportunities that are accessible to private investors and creditors, and to unlock the potential of the global capital markets to finance them. What is the best way to balance public and private investment in infrastructure? How can the international community help in developing local capital markets? Is an international mechanism to deal with cross-border investment regulation and competition rules needed?