Foreword xi, 
Acknowledgments xiii 
Selected Abbreviations xv 
. 
Overview and Policy Messages: Harnessing Cyclical Gains for Development 3 
Chapter 1 The Global Upturn and the Need for Adjustment 13 
Adjustment, recovery, and imbalances in rhe high-income countries 15 Developing countries: a favorable outlook, but risks remain 20 Regional prospects 25 
Advanced-economy policies and the outlook for development finance 33 Note 34 
References 34 
Chapter 2 Prívate Debt Finance for Developing Countries 37 Conditions affecting the supply of funds 38 
Conditions affecting the demand for funds 41 Ongoing structural change in financing 44 
Bond flows responded strongly to the external environment and domestic conditions 45 Bank lending picked up 52 
Progress in reformi~g the international financial architecture 58 Prospects for private debt flows 63 
Notes 63 . 
References 64 
Annex: Commercial Debt Restructuring 65 
Chapter 3 Shifting Forms of Equity Finance for Developing Countries 77 Trends in FDI flows in 2003 78 
The shifting composition of FDI toward services 82 
Trends in portfolio equity flows to developing countries 90 
Why portfolio equity flows are so much smaller than FDI and debt flows 94 Prospects for 2004-2005 96 
Annex A FDI Forecasting Model 100 
Annex B Top 25 International Equity Deals in 2003 101 Notes 102 
References 103 
Chapter 4 The Changing Landscape for Official Flows 107 Recent trends in official flows 108 
Prospects for a rise in official aid 110 
Strategic considerations and aid flows 113 Progress in raising aid effectiveness 115 
The Heavily Indebted Poor Countries Initiative 119 
The growing importance of international civil society in development 119 Notes 123 
References 124 . 
Chapter 5 Financing Developing Countries' Trade 127 
Evolution in the sources, magnitude, and methods of trade finance 128 Access of less creditworthy borrowers to trade finance 137 Trade finance in times of crisis 140 Notes 144 
References 145 
Chapter 6 The Challenge of Financing Infrastructure in Developing Countries 149 The changing balance between the public and private sectors 151 Recent developments in private external financing 154 
Unlocking the potential of the global capital markets 161 Notes 165 
References 166 
Appendix A: Enhancing the Developmental Effect of Workers' Remittances to Developing Countries 169 
Appendix B: Summary Statistical Tables 175 
Tables 
1 Net capital flows to developing countries, 1997-2003 4 
2 Net private capital flows to developing countries, 1997-2003 8 
1.1 Global outlook in summary, 2002-2006 14 
1.2 Financing ofU.S. current account deficit, 1999-2003 18 
1.3 Export revenues of developing countries, 2000-06 22 . 1.4 Developing-country growth, 1991-2006 24 
1.5 Growth in Europe and Central Asia, 1991-2006 25 1.6 Growth in South Asia, 1991-2006 27 
1.7 Growth in East Asia and Pacific, 1991-2006 28 1.8 Growth in Sub-Saharan Africa, 1991-2006 29 
1.9 Growth in the Middle East and North Africa, 1991-2006 30 1.10 Growth in Latin America and the Caribbean, 1991-2006 33 
2.1 Net debt flows to developing countries by region, 2000-03 37 
2.2 Gross market-based debt flows to developing countries, 2000-03 38 2.3 Declining severity of contagian over time 40 
2.4 Selected indicators of debt burden, 1997-2003 44 
2.5 Net bank flows to developing countries, 2001-03 52 
2.6 Average spreads on medium- and long-term announced loans, 1999-2003 53 
2.7 International claims of BIS-reporting banks 55 2.8 Covenants of bond issues with CACs 60 
3.1 Net FDI inflows to developing countries, 1997-2003 78 
3.2 Estimates of South-South FDI flows to 30 developing countries, 1995-2001 81 3.3 Average share of services in FDI flows and in GDP 82 
3.4 FDI in services, by investment climate in selected economies 85 3.5 Composition of FDI by region, 1995-2002 87 
3.6 Net inward portfolio equity flows to developing countries, 1995..!.2003 91 3.7 Forecast for equity flows to developing countries, 2002-05 98 3A.l Regression results oí FDI forecasting model 100 
4.1 Net official development assistance, 1990-2002 108 
4.2 Net official financing of developing countries, 1990-2003 110 
4.3 Aid commitments and announcements after the Monterrey Conference, March 2002 111 4.4 Net ODA to Afghanistan and neighboring countries, 1998-2002 113 
4.5 Quality of governance, institutions, and public services during the 1990s 118 4.6 Debt indicators for HIPCs that have reached decision point 119 4.7 Aid from prívate voluntary organizations, 2001 120 
5.1 Ratio oí officially supported export credits to imports 138 
5.2 Use of trade credit before and after East A-sian crisis of 1997-98 143 
6.1 International investment in developing countries' infrastructure as a share oí total gross domestic capital formation, 1992-2003 155 
6.2 Infrastructure bondissuance, 1994-2003 157 
6.3 Total global international bank lending and bond issuance, 1990-2003 161 
Figures 
1 Net financial flows to developing countries, 1992-2003 3 
2 Developing countries' current-account balance, 1997-2003 5 
3 Spreads on emerging-market bonds, January 2002-February 2004 6 4 Global current-account balances, 2003 6 
. 
1.1 Contribution oí investment to global GDP growth, 1998-2006 13 
1.2 Corporate profits in Japan and the United States, 2001-04 15 . 
1.3 Short-term interest rates in the Euro zone, Japan, and the United States, 2001-04 16 
1.4 Long-term interest rates (10-year government bond yields) in the Euro zone, Japan, and the United States, 2001-04 17 
1.~5 Net íinancial flows to the United States, 2000-03 18 
1.6 GDP growth in low- and middle-income and high-income countries, 2002-03 20 
1.7 Contributors to GDP growth in developing countries by demand component, 2002-03 20 1.8 Growth in imports and exports of goods and nonfactor services, 2003 22 
1.9 Global import growth and developing countries' contribution, 1998-2003 22 
1.10 Sub-Saharan African oil production as a share ofworld oil production, 1994-2003 30 1.11 Volatility of export growth in Latin America and the Caribbean, 1971-2003 33 
2.1 Debt flows to developing countries, 1995-2003 38 
2.2 Yields on debt to developing and developed countries, 1990-2003 39 2.3 Distribution of daily change in spreads, Jan. 1998-0ct. 2003 39 
:, 

2.4 U.S. corporate profits, 2000-03 41 
2.5 Spreads on developing countries and on developed-country high-risk debt, 1990-2003 41 2.6 Quality of developing-country credit, 1998-2003 43 
2.7 International reserves of developing countries, 1993-2003 44 
2.8 Growth in private debt and share of bank lending in private debt, 1971-2002 45 2.9 Credit default swap spreads for all developing countries and selected regions 46 2.10 Emerging market spreads, 2002-04 46 
2.11 Episodes of compression in developing-country spreads, 1993-2003 48 2.12 Decline in developing-country spreads by credit-risk category 48 2.13 Bond issuance from developing countries, 2002-03 49 2.14 Sovereign bond issuance, 1997-2003 51 
2.15 Breakdown of bond issues by type of borrower, 2003 51 2.16 Average spreads on new bond issuance, 1991-2003 51 
2.17 Cross-border claims of BIS-reporting banks, 1995-2003 54 
2.18 Foreign lending of ]apanese banks to developing countries, 1983-2003 55 2.19 Foreign lending ofU.S. banks to developing countries, 1983-2003 55 
2.20 Lending of BIS-reporting banks to developing countries, 1983-2003 56 
2.21 Local-currency claims and liabilities in developing countries, 1983-2003 57 
2.22 Spanish banks' foreign and local currency lending to developing countries, 1985-2003 57 2.23 International bank lending to Africa, 1983-2003 58 
3.1 Net inward FDI flows to developingcountries, 1995-2003 78 
3.2 FDI inflows to the world and developing countries, 1997-2003 78 3.3 Privatization and M&A in developing countries, 1995-2003 79 3.4 FDI as share of GDP in developing countries, 1995-2003 79 3.5 Regional shares in FDI 81 
3.6 Sectoral composition of FDI stock in developing countries in 2002 82 
3.7 Indexes of restrictions on FDI in selected sectors of advanced economies 83 3.8 The recent decline in FDI in the Latin American service sector 84 
3.9 Repatriated earnings and called intercompany loans in Argentina and Brazil 86 3.10 Composition of FDI flows in developing countries, 1995-2002 86 
3.11 Decline of intercompany loans versus equity component of FDI during financial crises 87 3.12 Intercompany loans and private debt flows in Brazil, 1990-2002 87 
3.13 U.S. reinvested earnings and income in OPEC mining sector, 1995-2002 88 3.14 U.S. reinvested earnings and income in selected regions, 1995-2002 90 3.15 Portfolio equity flows, 1990-2003 91 
3.16 Gross equity flows to developing countries and emerging-market st~ck prices 91 3.17 Sectoral composition of gross flows in 2003 92 
3.18 Currency composition of gross flows in 2003 92 
3.19 Number of listed stocks on selected developing-country exchanges, by region 93 3.20 Stock market performance in the United States, Europe, and ]apan 93 3.21 Equity issuance by public and private sector firms, 1990-2003 94 
3.22 The rise in M&A and the decline in portfolio equity flows, 1994-2002 94 3.23 Market capitalization as share of GDP 95 
3.24 Annualized volatility in developed- and developing-country stock and bond markets,1990-2003 95 
4.1 Net official development assistance to developing countries, 1990-2002 107 4.2 Geographical distribution of IBRD prepayments, 2002 110 
4.3 Geographical distribution of official development assistance from the European Union, 2002 112 
4.4 Possible cornrnitrnents and disbursernent under the International Finance Facility, 
2006-32 112 
4.5 Reasons for additional aid to a country 113 
4.6 Distribution of donor pledges rnade at Madrid Conference, October 2003 114 4.7 Full, interirn, and potential PRSPs, by country, January 2004 117 
5.1 Trade finance frorn rnarket-based sources, 1980-2002 128 
5.2 Share of trade finance in total bank lending, 1980-2002 128 
5.3 Business covered by export credit agencies and private insurers in'Berne Union rnernber countries, exports of 1985-2002 130 
5.4 Trade finance for developing countries frorn public sector or guaranteed by official sector, 
1980-2002 131 
5.5 Net cash flow frorn Berne Union rnernbers, 1982-2001 132 
5.6 Evolution of trade credit as a share of sales in developing countries, 1992-2001 134 5.7 Use of trade credit as working capital, by size of firrn 137 
5.8 Trade finance frorn cornrnercial banks, by investrnent rating, 1980-2003 137 5.9 Countries receiving the rnost official export credits, 1999-2001 138 
5.10 Countries with the highest ratios of export credits to irnports, 1999-2001 138 5.11 Ratio of officially supported export credits to irnports, 1991-2001 139 
5.12 Use of trade credit to finance working capital, by type and size of firrn 139 5.13 Percentage of sales on credit, by type and size of firrn 139 5.14 Percentage of sales on credit, by type and size of firrn 140 5.15 Percentage of sales on credit, by type and size of firrn 140 
5.16 New cornrnitrnents of export credit agencies in years following crises 142 
6.1 Regional cornposition of international investrnent in infrastructure, 1992-2003 149 6.2 The growth of rnobile telecornrnunications and the Internet, 1995-2003 152 
6.3 Status of electrical power sector privatization in developing countries, 2001 153 6.4 Private financial flows to developing countries' infrastructure, 1994-2003 155 6.5 Bond financing for developing-country infrastructure, 1992-2003 157 
6.6 Investrnent in developing-country infrastructure withprivate participation, 1995-2002 158 6.7 Average regional credit quality, 1995-2002 158 
6.8 Global annual average of debt financing for infrastructure, 1990-2003 158 6.9 Risk of investing in telecornrnunications and electricity, 1995-2003 158 6.10 Share in infrastructv¡e-related bank lending 159 
6.11 Stock rnarket behavior of global telecornrnunications and electricity industries, 1995-2003 159 . 
Boxes 
1.1 Reserve accurnulation in developing countries 18 
1.2 The fiscal response of low- and rniddle-incorne countries to the downturn 21 1.3. Cornrnodity prices and exchange rates 23 
1.4 The integration dividend in Central Europe 26 1.5 The benefits and hazards of oil funds 32 
2.1 General risk appetite and sentirnent toward developing countries 42 2.2 The developing-country credit-default swap rnarket 46 
2.3 Characteristics of developing-country spread rneasures 47 
2.4 Evolution of rnarkets for developing-country international bonds 49 2.5 The irnpact of Argentine "pesification" on BIS banking statistics 56 

2.6 Will experience in Argentina reverse the shift toward local operations? 57 2.7 Collective action clauses 59 
2.8 How BasellI affects developing-country risk weights 62 
3.1 The sharp decline in direct investment in Brazil 80 3.2 FDI for call centers 83 
3.3 Political risk insurance 85 3.4 Components of FDI 86 
3.5 Factors affecting dividend repatriarían 89 . 3.6 Emerging-market stocks-a separate asset class? 96 
3.7 The growing popularity of exchange-traded funds 97 
4.1 Defining aid 109 
4.2 Aid and the challenges of postconflict reconstruction 114 4.3 Aid from nongovernmental organizations 121 
5.1 The decline in documentarían requirements for trade finance loans 129 5.2 Social responsibility and export credit agencies 133 5.3 Factoring 135 
6.1 Growing demand for infrastructure services in developing countries 150 6.2 Measuring capital flows to developing countries' infrastructure 151 
6.3 Phu My 3-An example of the multisource nature of infrastructure finance 155 6.4 Key characteristics of syndicated bank lending to infrastructure 156 
6.5 Systemic risk associated with investing in telecommunications and electricity 160 6.6 Multilateral development bank spending on infrastructure in recent years 164