Outline for 12/5: International Development I Capitals Channels Foreign Aid IGO lending World Bank Group Regional Development Banks Private Sector Loans and Other Private Channels Microcredit

The Need for Capital in the Global South Capital (GDP)PopulationGDPpc Northlotslittle= high Southlittlelots= low Suggests two ways to reduce the North-South Gap 1.Move population from the South to the North 2. Move capital from the North to the South How feasible is the first option?

Capital Channels 1.Direct N Govt to S Govt. Foreign aid / official development assistance 2. N Govt to S Govt thru an IGO A. World Bank and International Monetary Fund B. Regional Development Banks 3. N Private sector and S Govt. A. Borrow from banks in the N B. Issue debt to investors (often in the N) 4.All private sector A. Trade and FDI B. Remittances

Foreign Aid Advantages – its free Disadvantages?

IGO lending Advantages – loans are low interest Disadvantages ?

World Bank Group Now includes 5 different institutions International Bank for Reconstruction and Development (IBRD) International Development Association (IDA) International Finance Corporation (IFC) Multilateral Investment Guarantee Agency (MIGA) International Center for Settlement of Investment Disputes (ICSID) Structure: President – traditionally an American (currently Jim Yong Kim) Board of Executive Directors – reps from 25 countries + WB President Board of Governors – reps from all member-countries Vote shares: USA 16% Japan 7% China 4.5% Germany 4% UK 4% France 4% Capital base: about $90 billion loaned out in 2008/09

Regional Development Banks Inter-American Development Bank 1959 Washington DC African Development Bank 1964 Ivory Coast Asian Development Bank 1966 The Philippines Islamic Development Bank1973 Saudi Arabia European Bank for Reconstruction and Development 1991 London

Private Sector Loans 2 forms: 1) borrow from banks in the N 2) issue debt to investors (often in the N) Advantages – lots of capital available thru these channels Disadvantages ?

Other Private Sector Channels Trade FDI Remittances

Microcredit Very small loans to individuals in poor countries so that they can start businesses Grameen Bank – founded in 1983 in Bangladesh Muhammad Yunus awarded Nobel Peace Prize in 2006 Does microcredit work? Micro/Macro Paradox

Preview RegionDevelopment StrategyOutcome? Latin AmericaImport-Substitution Latin America Debt Crisis Industrialization (ISI)Washington Consensus AsiaExport-Oriented GrowthAsian Financial Crisis Eastern EuropeShock TherapyEU Integration AfricaForeign Aid Continued Underdevelopment

FCQs