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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.

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Introduction

Debate over the role of private capital flows in international payments and appropriate government policies relating to them is a relatively recent phenomenon in the developing countries. Discussions of policy towards such flows in developing countries centred in the 1950s and 1960s upon the benefits and costs of foreign direct investment and the problems of “capital flight”. With the dramatic expansion of commercial bank lending to the developing countries in the 1970s and the subsequent debt crisis of the 1980s, attention shifted to analysis of sovereign debt, default, emergency lending, and possible “workout” schemes, with particular reference to the respective roles of government, banks and the international financial institutions.

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