Sources of International Finance

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Copyright 2006 - Biz/ed
Sources of Finance for
Development
http://www.bized.co.uk
Sources of Finance for Development
nternational nstitutions
%e nternational Monetary Fund (MF)
- Set up in 1944 at te Bretton Woods
Conference, New Hampsire
- Set up to elp put in place an economic
structure tat would elp prevent
te problems experienced by many countries
in te 1930s
- Aims to stabilise te international monetary
system and elp wen monetary flow
from trade causes problems
- Provides elp and advice as well as funds to
countries experiencing balance of payments
problems
MF
- MF gets its funds
from its 184 member
states - called
`quotas
- Current funds
in excess of $310
billion
- Quotas determined
by te economic size
of te member state
%e Headquarters of te MF in Wasington DC.
Source: ttp://www.imf.org/external/np/adm/pictures/captions.tm
%e World Bank
- An agency of te United Nations
- A group of five organisations
wic focus on providing funds
for projects aimed at alleviating
poverty, inequality
and promoting development
- Currently as 184 members
%e World Bank
- %e 5 institutions:
- %e nternational Bank for Reconstruction and Development
(BRD) - provides loans and advice to poor countries to assist
development
- %e nternational Development Association (DA) - interest
free credits and grants to countries wo are not able to
borrow troug normal market cannels
- nternational Finance Corporation (FC) - providing finance
troug te private sector for development
- %e Multilateral nvestment Guarantee Agency (MGA) -
providing investors wit protection against risk
to promote investment in developing countries
- %e nternational Centre for te Settlement of nvestment
Disputes (CSD) - arbitration service
in te event of investment disputes
Special Drawing Rigts (SDRs)
Special Drawing Rigts (SDRs)
- Originally set up in 1969
to support fixed
excange rates
- Value based on a basket
of international
currencies - currently
1.24 SDRs to te
- Now used as a potential
claim on currencies of
MF members -
currencies can be bougt
in excange for SDRs
eld by members
Gana participates in te Heavily ndebted Poor
Countries nitiative (HPC) sceme administered
by te MF as it attempts to reduce poverty.
%e sceme elps it to build new facilities
suc as tis Salvation Army ostel.
Source: ttp://www.imf.org/external/np/adm/pictures/caption4.tm
nternational Finance Facility (FF)
- Aiming to bridge te gap between te funds
currently pledged and tose needed to meet
te Millennium Development Goals (MDGs)
- Aims to raise an extra $50 billion per year
between now and 2015
- Uses te long term commitments of donor
countries as security for raising furter funds
on international capital markets
- %ere is concern from some about te
tecnical feasibility of te sceme and weter
te funds will be used in te correct way
to acieve te MDGs
Foreign Direct nvestment (FD)
Foreign Direct nvestment (FD)
- Policies to attract investment
- Suc investment often associated wit multinational
corporations (MNCs)
- Policies need to focus on aving te rigt conditions in place -
- nfrastructure
- Security
- Peace
- Local laws and regulation
- Government corruption
- Freedom of te market
- Local labour supply
- Legal issues - protection for te investor, property rigts, etc.
- %ax regime
- Has been criticised as being a means by wic MNCs
can exploit poorer countries
Aid
Aid
- Bilateral - from
one country
to anoter
- Multilateral -
aid distributed
by an agency
wo co-ordinate
donations
Aid can be useful for important infrastructure
projects suc as dams wic elp to generate
electricity as well as providing irrigation
scemes.
Copyrigt: Antijape, ttp://www.sxc.u
Aid
- Benefits:
- Help to kick-start economic development
- Used to elp develop vital infrastructure
needed to encourage oter investment
- Costs:
- Not always used for appropriate purposes
- Can be linked to various `strings tat may
not be in te recipient countries interests
- Crowding out of domestic investment
- Creates a dependency culture
- Distorts te working of te market
%ax Measures
%ax Measures
- %obin %ax - a tax imposed
on currency trading
- Aims to reduce sort term speculative
trades and stabilise currency flows
- Funds raised used to finance
development projects
- Political will to implement suc a tax?
%ax Measures
- nternational aid to elp developing
countries improve tax systems to
generate tax revenue more efficiently
- nternational taxes on pollution,
air transport, arms, rent on deep sea
mineral extraction - funds raised used
to elp fund development
- ssues of ow far suc taxes could raise
sufficient funds and weter tey would
distort markets too muc

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