OECD: '92 CAPITAL FLOWS TRICKLED TO POOR NATIONS

OECD: '92 CAPITAL FLOWS TRICKLED TO POOR NATIONS

Capital flows to developing countries increased sharply in 1992, but the share going to the poorest countries continued to shrink, according to a new study by the Organization for Economic Cooperation and Development.

The OECD said net resource flows to developing countries jumped by 23 percent to $175.3 billion in 1992. Much of the increase came from sharp gains in foreign direct investment and international bank lending, the OECD said.Of these capital flows, more than 55 percent went to upper and lower middle-income developing countries, such as Argentina and Peru, the OECD said. About 33 percent of the capital went to low-income countries such as the Philippines, while the 47 countries in the "least developed" category captured only 8.3 percent of the total capital, down from 11.1 percent in 1991 and 13.9 percent in 1990.

"The external resource situation of many of the lower-income countries is critical," the OECD report said. "Apart from China, Indonesia and India, they have benefited little from the recent expansion of private-sector inflows. They are increasingly, if not already totally, dependent on aid and their debt burdens continue to be a major hindrance to development," the report said.

The problems of these largely African countries, the OECD said, is that slow progress in economic reform and a poor track record for governmental stability continues to frighten off foreign investors - the largest source of new development capital.

The OECD said in order for these poorer countries to attract foreign investment capital they need to develop viable financial markets, stable regulatory policies and reduce the involvement of government in their economies.

More radical solutions for debt relief must also be found, the OECD report said.

"For a large number of countries, and not just the poorest ones, debt obligations are still beyond their ability to repay, even after Paris Club restructuring," the report said.

Africa as a whole now meets only half of its debt-service obligations "and only those countries which meet their obligations struggle to do so," the report said.