Assistance to the Transition Economies and North-South Cooperation
This chapter looks at financial flows, including from multilateral institutions, commercial banks, the debt positions, and foreign direct investment (FDI) in planned economies in transition (PET), and their implications for the developing world. It is important to distinguish among a number of different flows, including assistance from the multilateral financial institutions, official development assistance, commercial bank lending, debt relief, and FDI. Trade preferences granted to PETs may significantly weaken the relative competitive position of selected developing countries. Official flows comprise multilateral lending, support from export-credit agencies, and bilateral nonconcessional lending. Due to considerable risks, the high degree of external indebtedness and the uncertainties related to the political and economic transition, western commercial banks have been either reluctant to provide credits to the PETs or have done so at a high risk premium. The risk of diversion of capital flows from the South to the East would appear to be rather small, though not necessarily negligible, certainly for individual developing countries.