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Year 2006 will be 50-Year Milestone for the "Emerging Markets"
Concept Born With Founding of International Finance Corporation Private Sector Arm of World Bank Group
Washington D.C., December 15, 2005
—Next year, 2006, will mark a 50-year milestone in the evolution of the "emerging markets": the mission for which the International Finance Corporation (IFC), the private sector arm of the World Bank Group, was created in 1956.
IFC, the organization that coined the term "emerging markets," will use the occasion to launch a year-long debate and series of events on the unfinished agenda of private sector development in developing countries.
The founding of IFC as a multilateral development finance institution represented the first concerted, direct step by the global community to foster private sector investment and market creation in the poorer countries of the world. Today IFC is the largest multilateral provider of financing -- loans, equity, risk management, and structured finance products -- in the developing world. IFC is an innovative laboratory for new, market-based solutions for reducing poverty and addressing environmental and social challenges.
From a small start, the emerging markets have grown to play a pivotal role in the global economy (“Interest in emerging markets has never been higher,”
Wall Street Journal
, November 26, 2005; “International money managers are pouring funds at a record pace into the emerging markets … billions of dollars more are flowing into such countries from giant insurance companies and pension funds”
Washington Post
, December 8, 2005). Forthcoming books will even speak of the “emerging markets century.”
“The basic structure of finance for developing countries has changed dramatically in recent years. For every dollar in official development aid to the governments of developing countries, there is now more than $4 in cross-border private investment from rich to poor countries. Private capital flows and private sector job creation have become the largest parts of the development finance equation,” said World Bank Group President Paul Wolfowitz. “This was the hope when IFC was created 50 years ago, and IFC deserves tremendous credit for its record of innovation in helping make this happen. Our challenge now is to harness even more of this entrepreneurial energy, not only to reduce poverty but to address environmental and social issues.”
On January 17, 2006, IFC will be releasing a multimedia package of editorial resources
—
print, audio, video
—
that includes historical documents to support hard news, feature, and op-ed coverage of this 50th anniversary.
Today, private capital flows have become a powerful force for change in the poorer nations of the world, introducing not only investment and new enterprises but also new technology, innovative ideas, and higher environmental and social standards.
“Few people recognize that the creation of the emerging markets as an investment destination and asset class—for expanding companies, direct investors, equity investors, and bond buyers—is in fact the result of decades of behind-the-scenes work,” said Lars Thunell, IFC’s Executive Vice President. “IFC represents one of the success stories in the history of development. The private sector flows to the developing countries—and the private sector growth within countries—are helping the poor help themselves by creating jobs and globally competitive companies.”
IFC,
the first global multilateral created to foster the private sector in developing nations
, has pioneered initiatives from its own direct financing, alongside foreign investors. Its work has ranged from the
creation and promotion of the first emerging market equity funds and indices
to the creation and strengthening of
stock exchanges
and
the creation of a global benchmark for environmental and social standards
for project finance (the “Equator Principles”).
Background
Following World War II, the very concept that markets could power the rise of poor nations was, at best, an afterthought for those who created the Bretton Woods institutions and other key international organizations.
Postwar economic planners created the United Nations to foster geopolitical stability, the International Monetary Fund to ensure a stable currency exchange regime, and the World Bank to help rebuild war-torn nations and develop poorer nations through lending to governments. Promotion of an open trading regime was to be fostered through the Global Agreement on Tariffs and Trade, the forerunner of the World Trade Organization.
It was not until the mid-1950s that encouraging direct investment in the private sector of developing nations became a key part of the postwar economic agenda. In the wake of U.S. President Harry Truman’s famous “Point Four” foreign policy agenda, the need for an institution like IFC was promoted as a highly experimental but pioneering “Point Five” by the
New York Times
on Nov.13, 1954. Since its creation less than two years later, IFC has mirrored the growth of the emerging markets:
-
During the
1960s
, IFC struggled to survive but began slowly pioneering small direct investments, primarily in heavy industries (extractive industries, cement, paper, and manufacturing).
-
During the
1970s
, IFC pioneered the use of syndicated loans, which allowed commercial banks in Europe and the United States to begin diversifying their investment portfolios into the emerging markets. The Corporation also began to introduce new sources of capital to enterprises in developing countries.
-
During the
1980s
, through the creation of emerging market equity funds, stock markets, and the first emerging market index, IFC helped found the equity industry in the emerging markets. From a miniscule base, the capitalization of stock markets in developing countries has grown to nearly $5 trillion today.
-
During the
1990s
, IFC was a leader in fostering privatization of formerly state-owned enterprises across the former Soviet Union and encouraging private sector investors to invest in the infrastructure of many developing regions, especially Latin America.
In recent years, IFC’s role has broadened significantly, to include:
-
Issuance of a diverse array of
local currency bonds
that deepen domestic capital markets. These help provide long-term instruments for infrastructure investment.
-
Introduction of derivatives
and other risk management securities into emerging markets.
-
Creation of a
global benchmark for environmental and social standards
in emerging market finance (the Equator Principles), innovative public-private partnerships to preserve biodiversity, transactions allowing emerging market companies to tap into the
carbon credits market
, and initiatives supporting renewable energy and energy efficiency.
-
Ground-breaking
research on improving the investment climate
for small and medium entrepreneurs in the emerging markets, published in the annual
“Doing Business”
report.
-
IFC’s annual investments in
Africa
have risen 77 percent over the past three years, to $445 million in FY05.
-
During FY05, IFC’s investments in
microfinance
projects increased to $323 million, representing 69 projects across 43 countries and reaching 1.2 million clients in low-income households.
-
IFC has played a leading role in fostering the development of small and medium businesses through its
technical assistance
programs around the globe. It has also pioneered new methods of
monitoring and evaluating
development impact.
Today IFC is the largest multilateral provider of financing – loans, equity, risk management, and structured finance products – in the developing world. IFC is an innovative laboratory for new, market-oriented solutions for reducing poverty and addressing environmental and social challenges.
Please feel free to contact Corrie Shanahan of IFC at + (202) 473-2258 to discuss how IFC’s events, case studies, policy research, standards, and experts on the emerging markets can inform your coverage of this milestone in the global economy. Web site:
www.ifc.org
