Originally published in The Times of London, May 14, 2002
Letters to the Editor May 14, 2002. From Mr. John Hewko
While Lea Paterson succinctly lays out the macro agenda for reforming the International Monetary Fund?s woeful ways (Economic Agenda, April 22), she hints at something far more important, saying: ?Private sector capital flows dwarfed any rescue package that the IMF could conceivably offer.? For while the international development community searches for ways to be relevant in an era of free markets and globalization, it continues to resist a genuine relationship with the very companies that provide that dwarfing capital flow. Despite the conventional wisdom, foreign direct investment is not a passive spectator in the process of institutional and legal reform in developing countries. Foreign investors, and their legal and accounting representatives, are often in the forefront of change, testing newly drafted legislation, exposing defects in the economic and legal system, and pushing for better laws or more stringent enforcement. Serious foreign investors also play a crucial role in developing a cadre of citizens who understand and support the rule of law and a civil society. The international development community should recognize that foreign investment is a dynamic agent for institutional and legal reform in developing countries, the impact of which reaches well beyond simple economic development. Foreign direct investment is not the result, but the cause and catalyst, of institutional and legal reform efforts. The need for a more meaningful dialogue between the international development institutions and the private sector and a greater participation by foreign investors in structuring reform programs is clear and pressing.
JOHN HEWKO (Visiting Scholar),
Carnegie Endowment for International Peace