Comment on “Changes in Development Finance in Asia: Trends, Challenges, and Policy Implications”

Abstract

This paper (Nishizawa, 2011) discusses the trends of development finance in Asia, with a focus on external sources of financing, but touching on interconnections with domestic financing as well.Nishizawa defines "investment in developing countries with a public goods nature" as investment for development purposes.He addresses three main issues.First, how has development finance in Asia changed its sources and nature during the past decade and why has that happened.Second, what issues are on the common agenda for development finance in Asia going forward.Third, what are the respective roles of the public and private sectors for enhancing the effectiveness of development finance in Asia.The discussion focuses on four main areas: official development assistance (ODA), public-private partnerships (PPPs), green finance, and foreign direct investment (FDI).Nishizawa notes that, following the Asian financial crisis of 1997-1998, the savingsinvestment relationship in a number of Asian countries shifted from surplus investment to surplus savings.He argues that this shift to net investment in foreign assets is a sign that "domestic savings have not been fully and effectively utilized as sources of development finance . . .within the boundaries of the developing world" (Nishizawa, 2011, p. 163).However, I would argue that, following the Asian financial crisis, many Asian economies deliberately built up foreign exchange reserves, both as a means of selfinsurance against "sudden stops" resulting from capital outflows and as a by-product of foreign exchange market intervention to slow the appreciation of their currencies.Also, a recent Asian Development Bank (ADB) study did not find evidence of underinvestment in Asian economies (ADB 2009).Regarding external financing, FDI continues to be the workhorse of such flows, both in terms of magnitude and stability.ODA has declined, but "nontraditional" inflows have also been picking up.The author notes several developments in FDI flows -the increasing share in services, the development of south-south flows, and the importance of remittance flows. 1 Nishizawa discusses issues related to the level and efficiency of ODA, both of which are widely regarded as inadequate, and gives a good description of recent organizational †Correspondence

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