Paris, Feb 12: The creation of transparent, flexible financial systems open to worldwide capital flows is essential if underdeveloped countries are to achieve strong economic growth in the years ahead, the OECD said in a recent report.Despite growing concern in the international community in the wake of the financial crisis in Asia that unbridled flows of capital between countries at different levels of development can cause crises, the report praised free capital movements.
It said building Western-style financial systems was the "sine qua non for their economic takeoff".
"Over the next two decades, their (developing countries') development progress will involve rising domestic resource mobilisation and private international capital flows," the report 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," the report said.
The Organisation for EconomicCo-operation and Development said in its 1997 Development Assistance Committee report the development of liberal markets must go hand in hand with measures to strengthen the stability and safety of international financial markets.
The report said private capital was no substitute for official aid and a persistent decline in official aid since 1992 must be reversed."Private capital flows, while essential for development, are not a substitute," it said.
This was especially true in the world's poorest countries where little private investment ended up.
The report, written in November 1997 before the current extent of Asia's financial crisis was apparent, suggests more assistance to strengthen domestic financial systems as a way to minimise the risk of such crises.
It also counsels greater access to financial information, more multilateral surveillance, and new arrangements for international cooperation in crisis situations.
The report calls attention to diminishing levels of official developmentassistance (ODA) that has gone hand in hand with a rise in private assistance and investment in recent years.
The report said total resource flows from the developed world were 303.1 billion dollars in 1996 of which 234 billion came from the private sector.
The report also noted a 56 billion dollar increase in bond issuance.
While the increase in private flows was considered to be good news, the OECD said the numbers did not tell the full story."It's good news as far as it goes but it doesn't go very far. Twelve countries received 80 per cent of those capital flows," James Michel, chairman of the OECD Development Assistance Committee, told a news conference.
The report said this shift in financial flows to developing countries implied a greater reliance on domestic resources and their efficient use.
The report also said the focus of development assistance had to shift to be more participatory, meaning inclusion of domestic input in projects and development plans and become more focused on goodgovernment.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
