The Annual Report to the Board of Governors reviews the IMF’s activities and policies during any given year. There are five chapters: (1) Overview, (2) Developments in the Global Economy and Financial Markets, (3) Policies to Secure Sustained and Balanced Global Growth, (4) Reforming and Strengthening the IMF to Better Support Member Countries, and (5) Finances, Organization, and Accountability. The full financial statements for the year are published separately and are also available, along with appendixes and other supplementary materials.
One of the core responsibilities of the International Monetary Fund is to maintain a dialogue with its member countries on the national and international consequences of their economic and financial policies. This process of monitoring and consultation, referred to as surveillance, is mandated under Article IV of the IMF’s Articles of Agreement and lies at the heart of the Fund’s efforts to prevent crises.
Since the onset of the debt problem in the early eighties, developing countries have been in the grip of a deep and protracted economic crisis. For them the decade of the eighties has been aptly described as a lost decade as their standard of living suffered stagnation or even deterioration. Most of them have incurred unsustainable external deficits and experienced high rates of inflation, crushing debt-service burdens, and sluggish growth in gross domestic product (GDP). Part of their woes is undoubtedly ascribable to an unfavorable external environment, notably, mediocre growth in the industrial countries, a rising tide of protectionism, stagnation of financial flows, and worsening terms of trade. While these factors are important, they fail to offer a satisfactory explanation. A good part of the blame lies with domestic factors. In a large number of cases poor economic management is responsible for widespread macroeconomic and structural distortions and for failure to implement timely and effective programs of adjustment in the face of deteriorating external conditions.
The growing integration of the world economy in recent decades has brought substantial benefits to the IMF’s member countries. But this economic interdependence has also created new challenges, as demonstrated by the financial crises of the 1980s and 1990s. The IMF has responded to these challenges, in part, by strengthening its framework for, and enhancing the content of, surveillance—its foremost means of helping countries avert crises. Surveillance allows the Fund, working with its member countries, to identify economic and financial policy strengths and weaknesses and vulnerabilities that could lead to crises and to formulate policy actions that can safeguard stability. And, given the potential for national crises to spill over to other countries in today’s global economy, surveillance is a means for the Fund to fulfill its mandate of promoting international economic and financial stability.
This paper looks at investment in developing countries, its relationship to growth and development, and the macroeconomic conditions and policies through which investment and growth can flourish. It draws heavily on recent empirical studies by the International Monetary Fund in this area and brings out some of the issues surrounding the efforts by the Fund to support policies conducive to higher savings, investment, and growth in the context of adjustment programs.
The efficiency of public investment is quite a relevant and timely subject in Arab countries, because the public sector invests heavily, and because all resources for development are becoming increasingly scarce. In these countries, public investment is high both as a proportion of total investment and as a percentage of gross domestic product (GDP). This means that in the long run the growth of output, the standard of living, and welfare crucially depend on the efficiency of public investment. As Arab countries have adjusted to the reduced inflows of foreign resources that started in the early 1980s, the tendency has been to reduce public investment, meaning that maintaining any semblance of past growth rates depends on increasing the efficiency of the investment that remains.
Providing financial support under adequate safeguards to member countries with balance of payments difficulties is one of the IMF’s main responsibilities. In a time of increasing and volatile capital flows, the Fund continues to seek better ways of bolstering members’ efforts to adjust to adverse circumstances, restore a viable balance of payments, implement reforms, and strengthen growth.
This paper will discuss the policies that require foreign investors to enter into joint ventures with local firms, and the institutions used by host countries to promote, screen, and service foreign direct investment. These are related topics because the kinds of institutions that host countries need to put in place to deal with foreign investors will depend on the policies they are trying to implement. If the host country does not intend to screen foreign investors, or require them to enter into joint ventures with local investors, there may be no need to establish a procedure or an institution to deal with foreign investment. Brazil, for example, has had a very open attitude toward foreign direct investment, and therefore has not established a specific institution to regulate an investment approval process.
The IMF’s goal in low-income countries is to help them achieve deep and lasting poverty reduction through policies that promote growth, generate employment, and target assistance to the poor. This aim is consistent with the IMF’s mandate to “contribute … to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.”1 The Fund pursues this goal in close collaboration with other development partners—particularly the World Bank. In doing so, the IMF focuses on its core areas of responsibility and expertise, namely, helping member countries achieve stable macroeconomic conditions by providing them with policy advice supported by financial and technical assistance.
The objective of this study is to highlight the salient features of the regional scheme of investment guarantees managed by the Inter-Arab Investment Guarantee Corporation (IAIGC)—an institutional offshoot of joint Arab economic effort—and to review the experience acquired by the Corporation since it commenced operations in 1975. Before proceeding with this, however, we should consider the concept of investment guarantees against non-commercial risks and briefly discuss international guarantee schemes, which provide a useful point of entry into the subject of inter-Arab investment guarantees.