March 23, 2010

FINANCIAL FLOWS TO DEVELOPING COUNTRIES: RECENT TRENDS AND

PROSPECTS

Namaacha, 22 - 24 March - MOZAMBIQUE

Luiz A. Pereira da Silva – World Bank

Introduction

1. The Global Crisis, Causes, Where Are We Today...

2. Financial and Real Impacts of the Crisis3. Lessons from the Crisis4. Post-Crisis Risks and Opportunities for

Developing Countries5. Conclusions and Implications for

Mozambique

2

1. The Global Crisis, Causes

“Great moderation”, productivity gains Entry of China and ex-USSR into the market Global financial innovations with inadequate

risk pricing and very complex assets in the balance of institutions TBTF

Pro-ciclicality of the financial system without adequate regulation in a globalized world

Global disequilibria USA-China and within the EU

The Global Crisis, where are we today...5

Fast Recovery (1)

Past Trend Growth

Post-Crisis NewGrowth Path (2)

Stagnation (3)

Double Dip Recession (4)“Green Shoots”

Output

Time

2. The Crisis, Financial Implications In the short term, a run to “safe harbors”,

paradox, the USA Dollar, wwith implicaitons in liquidity (interbank market), exchanges rate and risk premia (CDS, etc.) “Credit Crunch”

In the medium to long term: Cost of capital will increase Better risk pricing and differentiation More financial regulation Reduction in the official flows and transfers

6

The Crisis, Financial Implications

7

Differentiated Financial Impacts

8

Private Capital Flows

Private Capital Flows to developing countries

Fonte: DataStream, World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

Milhares de Milhões $

Países de Rendimento Baixo

Fluxos de capital privado

Percentagem do PIB (eixo à direita)

Global Economic CrisisReal GDP growth rates in percent

Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

World

Developing

High-income

The Crisis, Real Impacts11

3. Lessons from the Crisis

Macro-Financial stability has to combine low inflation and prevention of bubbles (Financial Regulation)

Countries with solid foundations (Internal and External) can better weather financial turbulence, even of a global nature

12

4. Risks and Opportunities

Evaluate the “Pull” & “Push” factors in future capital flows to developing countries (Demand, Risk adjusted returns, Institutions)

Global growth in the next few years will be driven by the South (Emerging, other developing countries)

Demand for higher returns with adequate risk can favour FDI, stock markets, emissions from developing countries

Fiscal adjustment in the North will reduce aid flows and transfers

13

Riscos e Oportunidades14

Riscos e Oportunidades

Quando e Como Acelerar no Processo de Reducao a Dependencia da Ajuda Internacional?

Condicoes: Mercados Internacionais Mais Estaveis Manutencao da Estabilidade Macro-Financeira Local Fortalecimento da Percepcao de Estabilidade na

Governanca Economica e Politica Local Visao Estrategica, Projeto de Crescimento

Sustentavel, i.e. integracao economica, espacial, externalidades multi-setoriais

Aproveitar Novos Temas e Tecnologias

15

6. Conclusion and Questions (Part II)

Will Mozambique be ready for the international Bond Market? (Andrea Dore e Christian Mulder – FMI)

How to use guarantees to facilitate private sector fianncing? (Farida Mazhar – BM, Alastair Campbell e Jonathan Wood – Standard Bank)

Will Mozambican firms be able to issue corporate bonds in national and international markets? (Evans Osano – IFC)

What are the appropriate financial models for Public-Private Partnerships? (Jose Luis Guash – BM e Justin Tyson, Karen Breytenbach – FMI)

16

“the pessimism of intellect and the optimism of the (will)

practice”(Antonio Gramsci)

THANK YOU

23 de Março, 2010