1. Foreign private capital flows, including FDI, have become
increasingly important in financing growth and investment in the developing
world. Such flows dwarf official sector financing, and will continue
to remain an important engine of growth in a majority of the EMCs.
Foreign private capital flows, and in particular short-term flows,
can, however, be volatile as is evident from recent financial crises.
In this context, it is more important than ever to improve the monitoring
of trends in FDI flows to EMCs and gain insights into investment decisions
and structural changes that may affect the trends and direction of
such flows, especially since they have increasingly become the dominant
factor in net private flows to emerging markets and can potentially
be a source of stability at times of volatility in global capital
2. At the meeting of the Capital Markets Consultative Group (CMCG) held
in Tokyo in September 2002, the Managing Director of the IMF decided
to establish a working group on FDI under the Chairmanship of Stephen
Green, Group Chief Executive of HSBC, and Gerd Häusler, Counsellor
and Director of the International Capital Markets Departments at the
IMF, with a view to better understand recent trends in and future prospects
of FDI in EMCs, the investment strategies of large multinational companies,
and the determinants of FDI in EMCs. The Working Group consisted of senior
representatives from a number of large multinational companies with investments
in EMCs across various economic sectors, and also included staff from
the IMF and the World Bank. The Working Group has prepared the attached
report that was discussed and subsequently endorsed by CMCG members at
a meeting held in New York on September 8, 2003.
3. The findings in this report provide officials in countries seeking
to host FDI the views from private market participants on the key factors
and determinants of FDI that can be helpful in forming policies that
strengthen the business environment and support sustainable capital flows.
As well, the report adds to the IMF's ongoing surveillance of international
capital flows to emerging markets. Finally, the recommendations by private
participants to the international financial institutions encourage the
Fund and Bank to intensify their work with member countries in strengthening
the investment climate and conditions for FDI.
4. The report reflects the views of the Working Group and should not
be attributed to the Executive Board, the Management and the staff of
the IMF or the World Bank. It has not been discussed by the executive
boards of the IMF and the World Bank.