Global Changes Test Lenders IMF-World Bank Challenged to Keep Up with Influence of Developing Nations

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THE global economy is changing so rapidly that the world's major financial institutions are having a hard time catching up.

At the joint annual meeting of the International Monetary Fund (IMF) and the World Bank in Madrid, which concludes today, several major shifts have demanded the attention of the assembled finance ministers and central bankers who came from as many as 179 nations:

* Private capital has surged back into developing countries in the past four years after nearly a decade of relative stagnation following the external debt crisis beginning in 1982. Net private flows of bank loans, bond and equity purchases, funds, and foreign direct investment in developing countries totaled $30.8 billion in 1990, climbed to $68.6 billion in 1992, and reached $106.6 billion last year, according to IMF statistics.

The Institute of International Finance (IIF) in Washington, a global association of more than 180 major financial institutions, also estimates that the flows are huge, though not as high as last year. The IIF puts the capital flows into "emerging nations," a term that includes former communist countries and developing nations, at $190 billion in 1993. Former communist countries are not included in the IMF tally.

Such amounts far exceed the lending of the IMF and the bank. The World Bank and its low-interest loan affiliate, the International Development Association, made about $21 billion in loan commitments in their latest fiscal year. Private creditors predominate

In the case of major borrowing nations, such as Argentina, Brazil, China, India, Russia, Poland, and about 26 others, private creditors now account for 90 percent of all capital flows, according to the IIF. "While the IMF now has a smaller role as a lender to these countries, it can and should take new steps to promote stability in these dynamic and evolving markets," says Charles Dallara, managing director of the IIF.

Some officials have been urging the World Bank to direct more of its loans to countries that are not on the receiving side of private capital flows.

The surge in private investment has been stimulated by a trend toward market-based policies and sounder fiscal and monetary policies in a number of Latin American and Asian countries. Some of these nations have developed relatively sophisticated securities markets within the past 15 years.

Mexico and China alone have received about $50 billion each of foreign money over the past four years.

The competition of developing nations for investment has become sharp. Investment Canada, a government agency set up to bring in foreign investment, estimates that there are more than 9,000 programs or initiatives of some sort around the world trying to attract foreign direct investment. …