Basic Tendencies of International Movement of a Capital in the Conditions of Globalization in Economy
Characteristic feature of modern world industry is not only free trade in goods and services, but also free movement of a capital. In different regions all over the world, a stock exchange listing, rates of interest and course of currency are interconnected. World financial markets and capital markets significantly influence on financial-economic conditions; Moreover, international investment capital plays an important role in financial development in separate countries as well as in the regions all over the world. Above mentioned condition helps through “the inflow” of investment capital in highly-profitable countries; Conclusion: World financial and investment markets are increasing.
It must be said that a maximum intersubstitution of production factors is necessary for the development of the world financial system, that on its side is conditioned by the world mobility of investment capital. Financial capital compared with physical investment, because of its mobility occupied a leading place in the world financial system, as it has more opportunities for avoiding the countries characterized by strict regulation of currency and taxation. Most of the countries try to attract and maintain a capital. The problem of creating attractive economic conditions for investment capital is becoming more and more active.
Discussion of international investment problems creates the necessity of reviewing formation history of the world debt system. The system of international indebtedness started forming at the beginning of 1970s. A failure of Breton-Woods’ system in 1971 and the first oil crisis in 1973 can be discussed as an initial base. Since, banking activity in many countries has been relied on a state regulation. Above mentioned, first of all was caused by the lessons of great depressions and crises in 30s of the last century. As banking safety always occupied the first place in economy, profit was not considered as the first-class problem and banking shares were not considered any more as the means of attractive instrument for increasing capital. Although, the catalysts of new progressive ideas had already been appeared in the world market of a capital. Namely: First International City Bank of New York and Bank of America. e.g. this last, had chance to attract 20 times more funds, in comparison with its own capital. It was an unusual fact for that time.
BASIC STAGES OF INTERNATIONAL EXTERNAL
INDEBTEDNESS PROBLEMS
The last 20 years of aggravation of international external indebtedness problems, can conditionally be divided into three articles. As if, each article corresponds the characteristic stage of the world endebtedness problem. Moving process from one stage to another, first of all is depended on a complicated interrelation between debtors and creditors, and also on characteristic concrete conditions of each participants of a given process.
ARTICLE I. 1980-1985. In this period, size and structure of indebtedness of developing countries was changed. Among them countries with average income become the debtors of the rightful participant of world financial system – large commercial banks. After, total sum of indebtedness was in surplus compared with the capital of credit organizations and nonfulfilment of engagements, predicted by credit contract, exposed international banking system to danger. The second part of indebtedness was over the official creditors.
On this stage or world debt system development, debting crisis was perceived as a result of short-term liquidity problem. In order to return solvency to developing countries and their economic development not to be delayed, continuation of debt payment terms was offered, as well as qualitative improvement of macroeconomic system. The most special danger for the world financial system were big countries with average income (Mexico, Brazil). In the field of indebtedness, because of uniqueness of a situation, creditors agreed to discuss a crisis of each country separately. For the world financial system in the development of tactics with similar strategic meanings, it was necessary to expand goods and service markets and also to make reasonable economic reforms through the countries. In a new strategy, a basic role was given to International Currency Fond (ICF) and World Bank.
ARTICLE 2. 1985-1989. In the middle of 80s, nonfulfilment of conditions, predicted by credit contract by capital debtor countries of world financial markets (at the same time, characterized with average incomes),was less dangerous for the world financial system from the viewpoint of improving overall balance of commercial banks. Same time, it was clear that a range of economic problems of debtors had much more structural nature than supposed as social and political factors in this or that country are one of the reasons for a brake on the development in the field of world debt. Besides, a capital flow-out from these countries took place, for the purpose of getting higher and stable norms of profit. Nonexistence of appropriate economical reforms in the countries, was making a flow-out problem more difficult and aggravating the difficulties, connected to taxation balance.
In this situation, it become unavoidable that, the conditions of debt restructuring, to be looked through by creditors for the purpose of continueing its liquidating period. But, the capitalization of percents and the new credit by commercial banks and international financial organizations, reduction of liabilities or a size of its services was not planned.
Simultaneously, new funds were given to debtor countries by commercial banks and international financial organizacions, for keeping investment level. (that significantly helped them to cover debts), i.e. we can come to the conclusion. Characteristic problem of discussed period is – heavy liability of developing countries, that is qualitatively and quantitatively different from the same problem compared with one of large and average profitable countries. Comparison of the size of liability with their economical potential was caused by heavy economic conditions of developing countries.
Distinctive peculiarity of these countries was clearly revealed – dependence on large scale goods and exportable ones (besides towards one or two kinds of goods). Therefore, significant reduction in trading in these goods makes a negative influence on the service of debts, not to say anything about renovation of economic growth. All the above mentioned sircumstances, stipulated the necessity of revising the conditions of covering debts.
At the annual meeting of World Bank and ICF in 1985, a finance minister J. Baker announced the world indebtedness system development for this period. Mentioned strategy can be characterized with the following: by an experiment in correction of occurred activities in the given period, considering financial realities in debtor countries and by this acknowledged fact, that problems of debtor countries exceeded a temporal crisis of liquidity several times, because of the difficulties and structure of their country problems. First it was possible, that regulation of the world indebtedness crisis didn’t demand for a great importance. But in spite of an absolute agreement in questions of indebtedness crisis between debtor and creditor countries, a basic strategy of the latter ones was kept the same: Maintenance of creditors’ assets value through proper payments of current service on external debt. Above pointed sircumstance caused an objective complication in the process of the world indebtedness crises.
A BASIC STRATEGY OF BAKER’S PLAN
A basic strategy of Baker’s plan meant the offering of determined and necessary stimuli to debtor countries, for the fulfillment of current duties of debt service. One of the distinctive note of Baker’s plan was a new role of international financial institutions.
First stage implied the definition of ICF, as one of the main institutions in many respect. Its function, during the period of 1-1,5 years was assistance to the countries for the purpose of stabilization of economic situation. In Baker’s plan world bank was considered as a basic institution in many respects. The plan also implied a review of debt payment conditions, in case of covering a large proportion of debt, after several years, and also continuation of debt payment term. A goal of plan – giving maximum period of time for rooting out reasons of financial conditions of debtor countries. As Baker’s plan did not forsee the balance of additional crediting influence of debtor counties by bank, it generally a ccomplished with insignificant results. credit organizations gave for more less new loans than supposed. This period was used by banks for increasing reserves, in order to reinburse the loss of sovereign countries caused by debt non-payment. It must be said that, in 80s connected with this fact, banks received significant profits. By this time unification process of companies was on the top level. Appeared new loans for buying accommodation and operations of changing debts into bonds. Thus in spite of Baker’s plan, banks were unable to annul the loss, partially caused by debtor countries. Their increase reserves gave opportunities to banking institutes to recognise that, it is less presumable to liquidate the whole debt by debtor countries. It was weakening their assets and can only be used as the potential means of attracting any additional income.
ARTICLE 3. SINCE 1989. The third article includes, since 1989 up to present period. In 1989, international financial organizations began checking their possibilities of their resources, for the purpose of giving help to debtor countries by means of changing debt documentation, on issued bonds, for debtor countries.
At the same time, the policy of international financial organizations principally meant significant reduction in total sum of loans or the slice of debt interest. According to a new plan, recommendations for attracting policy of different kinds of investments including direct and portfolio ones were given to debtor countries. Swaps of debt shares were discussed as the realization instruments of above mentioned strategy, although a number of Latin-American countries used other mechanisms for covering debt. e.g. redemption of debt obligations or covering them by providing with goods and services.
Since the autumn of 1997, the world financial crisis has burst in the region of South Asia. It had an partial influence on banking systems of separate countries as well as all over the world, that was the beginning of a new stage development of above mentioned system.
So, instability in development of the word financial markets, frequent changes can cause uncontrolledness and complicated nature of their activities, that of course will stipulate economical collapse in different countries one by one.
WHAT IS THE PROCESS OF INTERNATIONAL MOVEMENT OF A CAPITAL
A process of international movement of a capital, represents the one of intercountry migration of investment for the purpose of their effective investment in foreign countries (for exporter countries), also attraction of necessary material and financial resources from foreign countries in international economics, in the conditions of their qualitative and structural insufficiency (for importer countries).
Countries of undereconomic development and transition from international markets of a capital, became the importers of significant streams in 1982-1989, only after finishing crisis of the world indebtedness. In the terms of different structure and scales of investment flows, flow of a capital in any case is conditioned by internal as well as external factors
Table 1.1
Structure of a capital in the world investment Market.
(USA in milliard dollar %)
Form of movement of a capital
export
import
1981
1990
1995
2005
1981
1990
1995
2005
Direct investments
50,8
10,4%
288,3
25,9%
393,0
23,4%
1190,7
31,5%
83,7
11,4%
200,8
8,0%
326,0
18,9%
1057,3
33,7%
Portfolio investments
72,8
15,0%
183,8
200%
408,0
28,8%
1305,2
34,6%
56,4
10,1%
202,1
23,6%
626,6
34,4%
1560,5
37,4%
Among them, in kind of bonds and other debt obligations
–
154,11
6,7%
292,9
20,7%
560,2
14,9%
–
254,3
22,8%
458,7
20,7%
740,4
17,8%
Assets
–
26,6
2,9%
120,7
8,5%
730,0
19,4%
–
3,8
0,3%
129,2
75%
741,2
17,9%
Other financial instruments and derivators
–
3,1
0,4%
5,6
0,4%
14,4
0,3%
–
11,8
1,1%
38,7
2,2%
78,5
1,9%
Other investments
365,7
79,6%
498,2
54,1%
676,1
47,7%
1280,0
33,9%
440,1
78,5%
649,6
58,4%
770,1
44,7%
1291,0
31,1%
Among them loans
–
243,5
26,5%
330,2
23,3%
212,9
5,6%
–
224,8
20,2%
397,0
23,0%
426,2
10,3%
total
489,3
100%
920,3
100%
1417,9
100%
3779,9
100%
560,2
100%
1112,5
100%
1722,7
100%
4152,7
100%
Improved macroeconomic situation as well as carried out structural reforms in importer countries of investments belongs to the first, but to the second – cyclic changes of interest rate in industrially developed countries, also increased interest of banking institutes towards developing markets. Significantly increased a corresponding share of crediting organizations in investing.
Investors’ increased interest, namely banking institutes conditioned reinforcement process of financial integration and globalization towards the countries of undereconomic development and transition, that made a positive influence on economics of separate countries and global economics totally.
In 1981-2005, export of a capital increased 7,7 times all around the world. During this period, international export flows of investments increased from 4,6% up to 12% on the world scale. Table 1.1 strict competition on national and world markets of a capital and complication of its forms throughout the world markets, also investment of a capital, different forms of export and import; all these above mentioned caused the growth of investment size on such a large scale.
A capital can be invested in and attracted from the foreign countries in the following form:
Entrepreneur’s and borrowed capital
Capital from private, state or international organizations.
Money and commodity capital
Long-term and short-term investment
Legal and illegal capital
Selection of this or that form is determined by a concrete goal of analysis. In practice of international analysis, all the above mentioned forms are considered. In order to estimate globally, how a phenomenon of international movement of a capital, influence on importer and exporter countries’ national economic development. Analysis is commonly produced by division of a capital into entrepreneur’s and borrowed ones. Generally, direct and portfolio investments belong to entrepreneur’s capital, although a significant part of this last is in fact borrowed investments (obligations, derivates and so forth). Borrowed capital creates another subgroup – “other investment”
ACTIVE INTERNAL AND EXSTERNAL FACTORS FOR THE EFFECTIVE DEVELOPMENT OF A CAPITAL
On the financial markets of developing countries, essential motives of investors’ arrival, and correspondingly investors’ increasing quality of this last in the world financial markets- this is searching for economically effective way of investing a capital and diversification of financial markets, but opportunities of developing countries, placing investments on financial markets, have been intensified since the beginning of 1990. A range of internal and external factors came into motion.
Internal factors: About the research of international movement of a capital, in literature, it is said that importer countries of a capital, improved the risk characteristics of a backward movement of investments for foreign investments and two methods were used for this. First, a high-priority credit rating of a country, that is reached by restructurization of an external debt in a number of countries. e.g. In Romania – in the middle of 80s, in Bulgaria and Poland in 1990. Moreover, in the countries, overloaded with debt obligations such as: Argentina, Mexico,Venezuela, as well as Nigeria and Philippines, internal economic situation was improved by means of their official participation in international movement of a capital.
Second: Creating optimal conditions for location of new production, as a result of structural reforms, strengthening confidence towards national macroeconomic politics, just after this, successfully developed stabilization programmes in Eastern European, South-Eastern Asian country associations and in Latin America.
Because, in European countries, execution of stabilization programmes and structural reforms have been started since 1990-1991, considerable development of their economic conditions has started since 1991-1993. e.g. since the middle of 80s Indonesia, Malaysia and Thailand has been realizing economic programmes, which caused the reduction of budget deficit, devaluation of national currency and reduction of internal crediting rate. At the beginning of 1990, the Philippines followed this example.
Thus, an openness of national economic towards external trading and reformation of financial system represented stabilization activities in these countries for internal investment market.
At the end of 1980, in Latin America, Bolivia, Chile and Mexico worked out economic programme against inflation. Argentina, Brazil, Ecuador and Peru began to realize such reforms only at the beginning of 1900. In association-countries of south-eastern Asia, similar economic policy was filled with the programmes, oriented on the liberalization of external trading in goods and services, as well as on the long-term borrowed markets of a capital.
External factors: Some authors call a drastic role of attracting private flows of a capital in question in national economic politics. It must be said, that a basic factor, that influences on directions of investment flows from the world markets of capital in economic of transitive and economic countries is the economic cycles in developed countries. Since 90s, investors’ interest has sharply been increased towards the markets of developing countries in two ways: It is connected to the reduction of world interest rate. At first, reduction of interest rate in the world markets of a capital coincided with economical collapse in the USA, Japan and in many European countries. It conditioned the fact that, it was possible to get extra profit from the markets of developing countries. On the other hand, just this factor was the reason for increasing creditability. Declined the risk, connected to the origin of default in debtor countries. It is essential to clear out, why most of the flows of investments come from the world markets of a capital. It is possible that mentioned investment flows, by the influence of external factors change their directons on the contrary – that will increase in macroeconomic instability of the market in developing countries.
Thus, a cyclical phenomenon, is a basic external factor, but after increasing the world interest rate in 1994 and after financial crisis in Mexico, such economic phenomenon as the stable private investment flows are, take place, that makes us suppose that structural changes will make their influence on external factors on the world markets of a capital. Two alternations in financial structures of donor countries, increased demands on a private capital and conditioned the formation of a new international investment possibility.
WHAT CAUSED THE DEMANDS ON A PRIVATE CAPITAL?
First and foremost, stiffer competition and increasing expenditures, so characteristic for national economics of industrially developed countries, make companies set their enterprises abroad in order to increase. The profit and a rate of economical growth. The outcome of influence of this factor is not only activation of export of a capital in the form of direct investments, but alternation of nature and meaning in direct foreign investments themselves, compared with the years of 1970s.
A major distinctive note of this period was that, the direct foreign investments were mainly directed in the raw materials and extractive industries, also in the fields in return of import. Although, globalization of financial markets, in the size of direct foreign investments gave rize to the growth of the part of this capital, that flowed-out from one country to another by the motive of searching approaches for effective use.
Second, alternation in financial structure of industrial countries, conditioned in the movement of investment capital from the world financial markets towards the ones of developing countries, as an outcome, institutional investors importance increased. Comparatively high rate of interest on the long-term investments and vast possibilities of risk diversification, became the reason for attraction of institutional institutes, that conditions an intensive investment of a capital in the economics of developing and transitive countries. It must be defined more exactly that, according to the long-term investment, the growth of rate is the result of increasing credit standing level of those countries, which realized the programmes of financial sector and economic stabilization totally at the end of 80s and beginning of 90s.
WHAT IS THE CAUSE OF RISK DIVERSIFICATION?
Wider possibilities of a risk diversification created as a result of improvement of the markets of issues in developing countries, which offered to investors a range of new instruments and accordingly the risk of liquidity increased more. Moreover, in recipient countries of a capital, globalization of financial markets, that is a result of an increasing competition, regulation of innovations on financial markets and technological changes, increased these possibilities more, that on its side increased the importance of institutional investors. Among them, the most significant are banking institutes, their goal is maximization of in comes and less obedience to the rules. In their development, such a tendency implies that, part of international investments, directed to the markets of developing countries increased. Banks were established, a capital in a number of developing countries; investing in defined regions specializing in separate countries, although it must be taken into account that investments in developed countries represent only 2% from the total liabilities of all the banking institutes in the USA. In Great Britain it goes up about 3-4% but it is not fixed at all in Japan and the rest of Europe. These figures underline the fact of insignificant potentialities in expansion of investment of banking institutes in the markets of developing countries.
Let’s discuss such intervening analysis. External factors played an important role in selection of investment priorities on the world market of a capital in 1990s, as a result of influence by cyclic and structural factors, during the medium – term period, the importance of structural factor, conditions distinct optimism about investing capital in the economics of developing and transitive countries. At the same time, there is a danger of large. scale flow out of a capital from the country, because of the growth in incoming private capital-flows.
Reinforcement of globalization process – is a basic tendency for the development of the world’s economy. Growth of international real estate services and changing of a capital, excels the growth of the world industry. According to the data of International Trade Organization (ITO) in 1990-2000, the world export of goods and services were rising annually 2,6-2,8 times
faster, than the world industry. In this period, export of a capital increased much more quickly. Its average annual rate of growth in service and goods exceeded international trade rate more than two times.
ACTIVE TENDENCIES OF INTERNATIONAL MOVEMENT OF A CAPITAL.
Specialists of International Bank, single out a range of common tendencies, that influence on international movement of a capital. Among, the following should be taken into account:
A) Basic macroeconomic indices of national economics, influence on the rates in long-term investments. Countries with better macroeconomic data; (i.e. High coefficient of investment in Whole Inner Product low level of inflation, real rate stability of national currency) attracted more account of foreign investments in the viewpoint of percentage approach to WIP. While, countries with negative macroeconomic indices, cannot practically manage to attract foreign investors.
B) Direct foreign investments are the main constituent components of market investments in developing countries and this condition is partially connected with macroeconomic indices, but is not characterized by only the growth of interest rate on a global-scale.
C) Portfolio investments are more sensitive towards the level of interest rate. Although, the size of these investments in 1992-1993 increased, in spite of the growth of interest rate on a global-scale
Having analysed the dynamics and structure of international movement of a capital, it must be said that, major investment exporters and importers in 1981-2000 are still developed countries: In 1981.on their part, total outflow of a capital was 79%. But in 2000-81%. A main donor of foreign capital and recipient of investment capital is still the USA throughout the world. After follows Great Britain and Germany, Canada, Netherlands, Belgium, Luxembourg and Swaziland. Among developing countries, according to this data the Persian Gulf countries are distinguished. (Turkey, India, Argentina, Thailand).
Among the importers of a foreign capital. Brazil, Argentina, Mexico, India and Turkey take first place. Relatively big recipients of foreign investments, belong to the European countries of transitional economics: Poland, Czech republic, Hungary.
WHAT CHANGES HAPPEN IN THE STRUCTURE OF INTERNATIONAL MOVEMENT OF A CAPITAL?
During the last two decades in the structure of international movement of a capital, vital changes took place, namely: In 1981-2000 relations between entrepreneur’s and borrowed capital, changed in favour of the last mentioned one. In the middle 80-90s, on the part of borrowed capital (without portfolio investments) were represented.
All the incoming and outgoing investments of the world market of a capital. By 2000, this share has been reduced. Although, as the part of portfolio investments belongs to a borrowed capital, share of the last one compiled more than a half of all inflow and outflow capitals.
OBJECTIVE REASONS FOR GROWING PORTFOLIO INVESTMENTS
In the movement of entrepreneur’s capital, portfolio investments take a leading position. Objective reasons for this sircumstance are the following:
– Improvement of investment conditions all around the world.
– Liberalization of politics, towards the international movement of a capital.
– Strong integration of economics of developing and transitional country markets, in the world market of a capital.
Bank of developed countries – reinforcement of investors’ investment possibilities imply the fixation of long term period for quick economical growth of fixed unique phenomenon in these countries. Though, in 1997-1998s, the world financial crisis underlined once more the
7.
size of portfolio investment and subordination of geographical location on existing economic
and political situation in recipient countries; drastic factor – short-term nature of debt obligations, which represent essential part of portfolio investments, and have ability to move firmly together with banking deposits through the countries for the purpose of keeping profit on one side and get super profit of the other hand.
Main participants of portfolio investment of international markets are the countries with highly developed economics. First is the USA, Germany, Japan, Belgium.
In 2000, 95% of total portfolio investments, comes to them as porters, but in 1990 it was 90%. Outgoing portfolio investments of transitional and economic countries compiled only 5% and incoming ones – 10%.
It must also be taken into consideration that direct investments – is main motivational power in the globalization process of the world economics. They deeply influence on the development of national economics, in exporter as well as in importer countries of investments. According to the Data of ICF, outflow of direct investments on a world scale, in 1981-2000 increased 23 times, but inflow – 20 times.
In 2001, distinct changes in foreign investments took place. (which were stable during the years). They decreased in absolute size-by 40%. Such alternation, from the point western experts view, can be explained not only by aggraviation in crisis situations, in developed countries (first in the USA) but also, by the fact that, the second half of 90s, was characterized as unjustifiable high activity in the field of direct foreign investments. At present, this situation is normalizing, and the process is returning back to the indicators, that took place in the first half of ongoing decade; but it must be mentioned, that typical priority of investment capital, compared with others is that it doesn’t increase the burden of recipient country in economic debts, it is invested for a long-term period and at last, as a rule is invested in a real sector of economics, that consequently expanses and rises production profitability.
According to the data of World Bank, direct investments have far more macroeconomic importance in Western Europe. (first of all, in small countries) in developing countries of Latin-America and also in the central and eastern countries of Europe.
For geographical distribution of direct foreign investments is characterized by the same regularities, as for the other types of migration of a capital. Developed countries are exporters as well as importers of these investments. By 80-90s, their share, in the total size of foreign investments outflow compiled 93,4%, but 76,8% in inflow. In 1995 these figures were correspondingly 86,2% and 61,5%. In 2000-91,0% and 79%. In 2001, after distinct reduction of international investment activity, the share of developing countries reduced up to 66% in the world capital inflow of direct investments.
Generally, it must be remarked, that location and attraction of direct state investments is concentrated within the bounds of developed countries. First of all, these are: the USA, Canada, Great Britain, Germany, France, Belgium, Luxembourg, and Netherlands. Such peculiarity of a capital as “inter-send of a capital” between highly developed countries must also be mentioned.
Essential part of investments, attracted from developing countries, comes on Latin-American and Caribbean Sea countries (2000-7%), also southern, eastern and south-eastern countries of Asia-11%. In XXI century, characteristic feature of direct foreign investments in importer and developing countries is their less dependence on falling in production in 2001. Here investment activity declined by 6% against 56% of developed countries.
In the world investment market, participation quality of transitional economics in central and Eastern-European countries is quite small, it is especially about the export of direct investments. In 1981-2000, their share didn’t exceed 0.002% in outflow of the world capital untill 1990,but in 1997 it reached maximum (0.7%). In 1998-2000 this indicator stayed on the level of 0.2-0.3%, their share in the world capital inflow is quite far more.
8.
It picked up (4-4.2%) in 1995-1997. In 2000-2%. Significant importers of direct foreign investments are: Czech Republic, Poland, Slovakia and Hungary. The main power for stabilization and expansion of the world investments market are transnational banks and their foreign branches. Liberalization of international investment market working out unique norms for investment cooperation are basic tendencies of those politics, carried out by national authorities and international organizations for the development of the world investment market.
FORMATION OF INTERNATIONAL INSTITUTES OF GLOBAL STATUS
Formation of international institutes of global status is undivided part of economic relations, connected to international investments. The goals of their activities are: post coordination of participant countries in investment field, introduction of unified methods of working in the world investment markets, control on keeping international judicial norms realizations of joint projects and programmes, creation of new international organizations, reunion and judicial structures, activation of functional, international and regional institutes and also intensification of their roles for regulating international investment market. All the above mentioned are essencial characteristic features in the last decades of XX century. Various forms of investment cooperation are developed in the frames of international integrated unions. (European Union, Naphta, Asean and others). e.g. in the field of international investment, European Union creates institutional principles for the united economic policy: it also established supernational institutes of economic regulation.
Main changes in the world investment market are conditioned by financial globalization and at a growing rate of scientific-technical development. In 70s of XX century, direct investment are implied as the dominant form of international investment, but in XXI, portfolio investments developed beforehand. It must be said that, reinforcement the importance of financial instruments, helps to attract investments from the investment market to develop new technologies, to raise a banking capital and run the risks qualitatively. International movement of financial instruments is acquiring more and more independent character. So called contract forms of investments are forming, such as: Contracts of services and management, contract of purposeful debt loans contracts of investments of a capital, franchise and leasing contracts and contracts about product distribution. A principal difference among above mentioned operations, is that, conferring the right on property to nonresidents is not in their competence-this is a characteristic feature, towards traditionally discussed direct and portfolio investments. But, contracting form of investments gives right to get profit.
CHANGES IN THE SOURCES OF INVESTMENT FORMS
Essential changes are happening in the structure of direct investment formation sources in the world market, connected to movements in the field of different kind of priorities and effectiveness, also connected to the reinforcement of interconnections between the markets of securities and credits. Corporative investments together with financial instruments and traditional mechanisms of giving banking credits for financing investment demands are used. Simultaneously, share of credits in international financial organizations is steadily reduced because of strengthening crediting rules. In the conditions of rising financial globalization and transformation of international market structure of corporative bonds take place in the section of basic fund assets. Shares of companies are implied as the main financial instrument. Its share three times exceeds the one of the bonds. International market of state bonds is losing its importance step by step. The cause of this fact is that developed countries has a policy according to which the deficit of state budget is gradually falling into a decline, correspondingly at the
expense of reducing new debts. According to the second reason, the principle of giving priority to investors’ changing at the expense of profit reduction in state securities, besides transacting operations increase in the market of shares.
CHARACTERISTIC TENDENCIES OF INTERNATIONAL INVESTMENT
A growing rate of the scale in reunion and connection of credit organizations belongs to the characteristic tendencies of international investment, that makes the liberalization of capitals possible, in the conditions of financial globalization .Reunion and connection of credit organizations (Thus disappearance of state banks by foreign investments) should be discussed as one of the important kind of investment operations. In the last decade of XX century, just reunion and connection of financial organizations, but not investments, became the ground for growing investment banking capital to establish new banks, comparatively “ young”, financial market being in the formation process, as a result of reunion and connection of already formed banking institutes, essentially it includes developed countries, post – socialist countries of eastern and central Europe and considerably in a little form – developing countries.
On its part, this process can be discussed as a diversified formation process of financial banking groups, for which the following functions are characterized: (corporative crediting, investment activities; retail banking services, insurance). All the above mentioned will fill the world investment market in the future.
Institutional changes, caused by integration of financial institutes, is the main factor that can create investment space and works by unified rules. Integrated model is formed, that provides growth in the demands of investment resources at the expense of activities of diversified financial institutes, which combines the functions of investment and commercial banks, without ones, expansion of new financial instruments.
A main tendency, for the world investment market development includes strengthening the role of developed countries and weakening the one of developing and transitive countries of economics. Especially for the markets of direct foreign investments. e.g. In the field of investment import, industrially developed countries compile about 73%, about 24% – developing countries and below 3% – central and Eastern-European countries (including Russia). In the field of investment export 90% comes on developing countries, about 8% – on developed countries, but less than 1% – central and Eastern – European countries (including Russia).
In last decade, in the world market of a capital, growth in size of direct investments is reached by investors of the world largest three countries – at the expense of the USA, European Union and Japan. By these countries are concentrated 92% of invested investments and 80% – of attracted ones.
For the development of international investment market, one of the main peculiarities of modern stage is essential growth of European Union, as the centre of the world investment importance. Countries of European Union became the largest donors in the world investment market. 80% of total net-export of foreign investments includes five European countries, which are: Great Britain, Germany, France, Netherlands and Sweden. At the same time, position of European countries intensified in the field of investment attraction from the world markets of a capital, and also in the group position. Thus, growing rates of international investments at the end of XX and beginning of XXI centuries are higher, compared with the rates of industrial production, the world INP and the world trading in goods and services. It conveys the impression, that movement of foreign investments, mostly makes a positive influence on the world economic conditions, but in 2001 “euphoria” of foreign investments finished. In 2001 their inflow compiled 735 milliard $ in the world economics, but outflow – 621 milliard $. In current prices, these indices went down, correspondingly by 51% and 55 %. Such significant declining (almost half) was the first event during the last 90 year-period. The reason of such substantial reduction in direct foreign investments (according to the number of transactions, as well as to their size) is significant reduction in reunion and connection of international financial organizations, that compiles from 70% up to 85% of the world investments. It must be said that, in many foreign specialists opinion, the world economy by 2000 has reached the highest level of development in standard average conditions of investments. Size of investments by this period 5 times exceeded the level, reached five years ago. The specialists of economical development and cooperation organizations consider that, in 1999-2000, so called “ exaggerated investment” took place. Second reason of significant reduction in investment scales on the world market of a capital is the collapse on the world markets of a capital, that touched three main centres – The USA, European Union and Japan of the world financial capital. Simultaneously “hesitant” situation on the stock markets in developed countries on its part influence on size reduction of financial resources, invested by banks abroad. These factors had short-term cyclical character, although they became the reason of reducing investment activities in the banks of developed countries.
About the Author
AFFI / Binalot at Umagang Kay Ganda