At the dawn of the twenty-first century, Africa is at a crossroads. It must quickly select the path it wishes to follow. Either the continent takes its destiny squarely into its own hands, or it leaves the shaping of its future to chance or to special interests. Africa does indeed have a choice. On one hand, it can allow the forces of implosion and ethnic warfare to become the masters of its fate, to the advantage of a few potentates lacking in vision or warlords with transient alliances. Thus, history would repeat itself, with all the suffering that this entails, and this old continent will be at the mercy of all types of corruption. Africa would be stripped of the wealth of its soil and the promise of its youth and left marginalized, adrift in the wake of history.
International Monetary Fund. External Relations Dept.
This paper examines some dimensions of the problem of income inequality. The conventional approach to income inequality is to define the problem in purely relative terms. A familiar technique for this purpose is to measure inequality by the extent to which the income share of groups of individuals or households differs from their population share. The paper examines the problem in terms of income shares of the lowest 40 percent, the middle 40 percent, and the top 20 percent of households ordinally ranked by income.
I am honored to be here to share with you the IMF’s thoughts on the turbulent events of the past two years and what lies ahead. With growing signs that the worst of the financial crisis is over, we now have an opportunity to reflect on the weaknesses revealed and remedies needed. But that does not mean that we can afford to be complacent. We are being given a chance to right the wrongs, and delay would only sow the seeds of the next crisis.
After increasing more than threefold between 1990 and 1996, total net resource flows to developing countries have since halved, despite a brief recovery in 1999 (Figure 1.1).1, 2 Resource flows from private sources, comprising foreign direct investment (FDI), portfolio investment, bank lending, and international bond issuance by developing countries, dominated these developments. Private flows accounted for nearly 80 percent of the total net resource flows to these countries in 1996 and have remained around 60–70 percent since 1997. However, the overall dominance of private flows masked a vast difference in the composition of flows across income groups in developing countries. While private flows contributed the bulk of the resource flows to middle-income and transition economies, they accounted for less than 10 percent of net financing to low-income countries in the last two years. These countries, particularly the heavily indebted poor countries (HIPCs), have relied primarily on official development finance (ODF), absorbing about half of the net official development assistance (ODA) flows to developing countries (Figure 1.2).
Over 90 percent of world trade is conducted on the basis of cash or short-term credit, with the remainder supported by medium- and long-term credit and other means of financing. Trade financing therefore is an important component of external financing for developing countries. Export credits supported by official export credit agencies (ECAs) are a key element of nonconcessional financing from bilateral sources to developing countries and economies in transition (Box 2.1).7 The Berne Union of ECAs accounted for more than 16 percent of the total indebtedness of these countries and almost half of their indebtedness to official creditors in 2001.8
Gross multilateral development bank (MDB) lending to developing countries remained relatively flat over the second half of the 1990s and through 2001 (Table 3.1). Lending did increase briefly, in 1998, as MDBs expanded financing to Brazil following its crisis. This trend of MDB gross financing is reflected in the nearly constant share of MDB disbursements in total disbursements to developing countries. However, unlike trends in gross financing over 1998–2001, net financing to developing countries exhibited a much lumpier pattern mainly on account of repayments to MDBs following the Asian and Russian crises, namely by Korea. Overall, the pattern of MDB lending to all developing countries reflected that of middle-income countries (Table 3.2).
During 2001–02, Paris Club creditors concluded 30 rescheduling or deferral agreements, involving debt-service obligations and arrears amounting to about 44 billion (Table 4.1). As in previous years, most of the rescheduling agreements were concluded with low-income countries, usually on concessional terms17 (Table 4.2). Most middle-income countries have graduated from rescheduling agreements with Paris Club creditors, as evidenced by the fact that there were only three rescheduling agreements with debtor countries in this category during the period under review: Jordan, Ukraine, and the Federal Republic of Yugoslavia18 (Table 4.3). Although the possibility of further reschedulings with middle-income countries cannot be excluded, the debt treatment offered by official creditors, as well as the progress many of these countries are making in stabilizing their economies, should make this less likely.
Excessively high levels of external debt have been a serious obstacle to economic growth and poverty alleviation in heavily indebted poor countries. A high external debt-service burden can directly reduce resources available for social expenditures and adversely affect economic growth, hence indirectly leading to increases in poverty (Box 5.1). The HIPC Initiative, launched in 1996 and enhanced in 1999, aims to reduce heavily indebted poor countries’ external debt to sustainable levels, removing this obstacle to poverty reduction and growth in these countries.
International Monetary Fund. External Relations Dept.
The IMF will continue to remind industrial countries of their responsibilities to provide more effective support to developing countries—both through higher, more predictable, and better coordinated aid and through more open trade polices, said IMF Managing Director Rodrigo de Rato on concluding a visit to Burkina Faso on September 9. This is the latest in a series of listening tours to IMF member countries undertaken by the IMF’s Managing Director to sound out governments and civil society about their priorities and main concerns. His most recent travel included stops in South America and sub-Saharan Africa.
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