foreign loans and investments
DESCRIPTION
The slides provide a brief background on foreign loans and investments in the Philippines including foreign direct investments. It also shows some data on these financial inflowsTRANSCRIPT
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Presented by:Ferdinand C. Importado
December 16, 2012
Business EconomicsDr. Carlos L. Manapat
FOREIGN LOANS AND FOREIGN INVESTMENTS
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International flow of financial resources Private foreign direct and portfolio
investment Foreign direct investments Foreign portfolio investment
Public and private development assistance Individual national governments Private NGOs
Remittances of earnings by international migrants
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Foreign direct investmentForeign direct investment (FDI) is a category of investment that reflects the objective of establishing a lasting interest by a resident enterprise in one economy (direct investor) in an enterprise (direct investment enterprise) that is resident in an economy other than that of the direct investorOECD Benchmark Definition of Foreign Direct
4th edition
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Foreign direct investmentRefers to investments made to acquire a lasting interest by a resident entity in one economy in an enterprise resident in another economy. The purpose of the investor is to have a significant influence, an effective voice in the management of the enterprise
Balance of Payments (BOP) Manual
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Foreign direct investment flows
New or additional investments paid by a foreign entity to a resident enterprise in another country during the period
Capital or equity contributions or remittances from abroad,
Reinvested earnings, Technical fees and royalties converted to
equity, Bonds and other debts converted to
equity and imports converted to equity
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Approved foreign direct investment The amount of proposed contribution or
share of foreigners to various projects in the country as approved and registered by the BOI, the PEZA, the SBMA and the CDC
Do not represent actual investments generated but rather foreign investment commitments which may come in the near future
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Registered foreign direct investment Represent foreign equity investments or
paid up capital and excludes intercompany loans
Not all approved FDIs are translated into registered FDIs
Capital inflows from approved FDIs are spread or expected to be fully implemented after five years or more
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Foreign direct investment inflows
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Net FDI inflows in selected Asian countries
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FDI trends in the Philippines
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FDI by inward source Philippines
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Top investors 2Q 2012
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Top investors 1SEM 2012
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FDI spillovers
Skills via labor mobility Exports and infrastructure improvement Imitation Competition Vertical linkages
Horizontal, backward and forward linkages
Source: Lesher, M. and S. Miroudot. October 2008.
“FDI Spillovers and Their Interrelationships with Trade”
OECD Trade Policy Working Paper No. 80
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Benefits of foreign direct investments Provides management resources where
that could be scarce Investments can provide a critical
component of technology and innovation
Brings in additional capacity to employ the country’s labor and other economic resources
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Arguments against foreign direct investments
Exploitation of economic resources by foreigners
Foreign direct investment competes with Filipino enterprise
Foreign direct investments promote control of the nation’s politics by foreigners
Foreign investment is inimical to society and its progress
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Private portfolio investment This consists of foreign purchases of the
stocks (equity), bonds, certificates of deposits and commercial papers of less developing countries
Benefits: Investor – increase returns on investment
while diversifying risks Recipient LDC – raising capital for
domestic firms
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Foreign aid
Refers to any flow of capital to less developed countries that meets the following criteria:
Its objective should be non-commercial from the point of view of the donor
It should be characterized by concessional terms○ Concessional terms mean that the interest
rate and repayment period for borrowed capital should be less stringent than commercial terms
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Foreign aid
It encompasses all official grants and concessional loans, in currency or in kind, that are broadly aimed at transferring resources from developed to less developed nations on development, poverty or income distribution grounds
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Problems in measuring foreign aid Dollar values of grants and loans cannot be
simply added Different significance to donor and
recipient Foreign aid is tied as
By source By project
Distinguish between Real Nominal
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Official Development Assistance
Flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent
Organization of Economic Cooperation and Development (OECD)
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Official Development Assistance
Promoting sustainable social and economic development and welfare;
Contracted with governments of foreign countries with whom the Philippines has diplomatic, trade relations or bilateral agreements or which are members of the United Nations;
No available comparable financial institutions;
Grant element of at least 25%
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Grant element Reduction enjoyed by the borrower whenever
the debt service payments, which shall include both principal and interest and expressed at their present values discounted at ten percent (10%), are less than the face value of the loan or loan and grant
The grant element of a loan or loan and grant is computed as the ratio of (i) the difference between the face value of the loan or loan and grant and the debt service payments to (ii) the face value of the loan or loan and grant.”
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Global trends Net ODA disbursements consistently rose in
real terms since the late 1990s and reached $105 billion (at constant 2004 prices) in 2005, up from about $58 billion in 1997
In 2005, the G8 pledged to increase global ODA to $154 billion in 2010
Aid flows reached $120 billion in 2009, there’s still a $30 billion shortfall in the annual ODA level agreed upon by G8 in 2005
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ODA portfolio
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ODA portfolio
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ODA portfolio
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ODA loans by funding source
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Global initiatives toward aid effectiveness
Ownership
Alignment
Harmonization
Managing for results
Mutual accountability
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Why donors give aid
Political motivations Marshall Plan Alliance for Progress
Economic motivations Foreign exchange constraints
○ Savings constraint or gap○ Foreign exchange constraint or gap
Growth and savings Technical assistance Absorptive capacity
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Why LDC recipients accept aid
Economic reasons Role of aid over its amounts and conditions
Unproductive projects Plundered by corrupt public officials
Greater political leverage to suppress opposition and maintain power Increased interference with internal
government affairs Rich nations have an obligation to support
LDC economic and social development
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Effects of foreign aid
Aid has promoted growth and structural transformation in LDC
Retard economic growth rather than supplement domestic savings and investment
Aid weariness