An International Monetary Fund report acknowledged that opening capital
markets to foreign investment may raise the risk of financial crises in
poor nations, casting doubt on advice the IMF has offered governments for
more than a decade.
Investment from overseas might increase volatility in developing nations'
economies because of dependence on investor whims, said the report, which
was co-written by IMF chief economist Kenneth Rogoff. The report urged caution.
"International financial integration, should, in principle," help countries
reduce economic volatility, it said. "The evidence suggests that developing
countries have not fully attained this potential benefit."
Argentina, Brazil, Indonesia and Russia are among countries that have taken
IMF advice in recent years to open up to foreign investment, only to see
their economies plunge into recession as investors fled at signs of
economic trouble. Argentina, once the biggest borrower from capital markets
among developing nations, defaulted on $US95 billion ($A160 billion) in
debt, the largest failure in history.
The IMF provided hundreds of billions of dollars in loans to those
countries and others such as South Korea and Thailand in the past decade,
usually on condition that borrowers further dismantle barriers to foreign
investment.
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http://www.theage.com.au/articles/2003/03/19/1047749824128.html
