Markets must reform to achieve growth, says report
The Organisation for Economic Co-operation and Development (OECD) yesterday joined the growing calls for reform of international financial markets, saying that greater transparency and flexibility in markets must be accompanied by safety and stability within financial systems.
Releasing its 1997 Development Assistance Committee report, the OECD said liberalisation of financial markets was vital for developing countries to achieve strong economic growth, and that the financial markets crisis in Asia must spur measures aimed at sweeping away constraints on capital flows.
In an unabashed endorsement of Western-style economic development, the OECD - a group of 29 of the world's richest nations - said such financial systems were the 'sine qua non of their economic takeoff', and formed the best example of the benefits which could be achieved.
It dismissed concerns that free capital flows could have a detrimental effect on countries at different levels of development.
'Over the next two decades, [the] development progress [of developing countries] will involve rising domestic resource mobilisation and private international capital flows,' the OECD said.
'The liberalisation of capital flows and financial markets to produce a global financial system is an historic endeavour with a high payoff in terms of world economic growth and development.' It said the global financial system could be strengthened by ensuring a wider spread of - and easier access to - financial information, greater and enhanced surveillance by multilateral institutions, and new arrangements for co-operation in times of financial crisis.
It warned that governments, who are shrinking the flow of aid they provide to developing countries, risked jeopardising the creation of a more efficient global financial system, and said they must not become too reliant on private sector investments to maintain capital flows.
It noted that since 1992, official sector capital flows to developing countries had dropped sharply, and it said the rise in private sector flows did not represent an adequate alternative.
'Private capital flows, while essential for development, are not a substitute,' the report said.
Resource flows from the developed world in 1996 amounted to US$303.1 billion, but about $234 billion came from the private sector, while there was also a $56 billion rise in bond issuance.
Furthermore, the bulk of the flows to developing countries are targeted mainly at 12 favoured countries, and inevitably miss those countries which might face the greatest need.
The OECD said it welcomed the increase in total capital flows, but said governments must be prepared to make a greater contribution.
It said the shift in financial flows to developing countries implied a greater reliance on domestic resources and their efficient use, but said development assistance had to encourage greater amounts of domestic content, and involve more participation in that assistance.
FREEDOM AIDS DEVELOPMENT Report finds liberalisation essential for economic vitality Western-style development seen as a measure of the best Shrinking government assistance may jeopardise efficiency