Chapter 4: Harnessing Private Finance

The pattern of capital flows
Supporting sound domestic policies
Strengthening the international financial system
International co-operation on investment, competition and tax
Promoting corporate social responsibility
Encouraging private investment into developing countries

The UK Government will: · Work with developing countries to put in place policies that will attract private financial flows and minimise the risk of capital flight. · Work to strengthen the global financial system to manage the risks associated with the scale, speed and volatility of global financial flows, including through use of 'road maps' to guide countries on opening of their capital accounts. · Encourage international co-operation on investment, competition and tax that promotes the interests of developing countries. · Encourage corporate social responsibility by national and transnational companies, and more investment by them in developing countries.

The pattern of capital flows

150. A central feature of globalisation has been the substantial increase in movement of capital around the world. Foreign direct investment (FDI) to developing countries increased from US$36 billion in 1992 to US$155 billion in 1999, more than three times the level of development aid. But the pattern of these flows is heavily skewed towards the larger and more industrialised of the developing countries^xix.

151. This picture is not so stark when the relative size of the economies of developed and developing countries is taken into account. As a proportion of their national wealth, developing countries receive more FDI than do developed countries. But there is no room for complacency - many developing countries need access to foreign finance because their own savings rates are very low.

152. In addition to FDI, developing countries have also gained access to international capital markets in the past decade. The purchase of bonds and equities issued by governments and firms in developing countries increased from US$63 billion in 1992 to a peak of US$105 billion in 1994. These portfolio flows fell back to only US$5 billion in 1999 following the East Asian financial crisis. The reversal was even more dramatic in the case of short-term bank lending with a peak inflow of US$75 billion in 1995 turning into an outflow of US$91 billion in 1999. Such volatility is very damaging for economic development and poverty reduction.

153. In many developing countries a considerable part of private wealth is held abroad rather than contributing to national development. The reasons for this include domestic conflict, tax evasion and political corruption: it is estimated that 40 per cent of African private wealth is held overseas compared with only 4 per cent in Asia^xx. In some cases, the problem is partly due to poor economic controls. In Russia, capital flight has fallen dramatically from around $25 billion in 1998 to $15 billion in 1999 as a result of tightening economic controls^xxi. Where investment conditions in a country markedly improve some of this capital can be attracted back. For example in Uganda - following an economic reform and stabilisation programme - net private capital inflows more than doubled as a percentage of Gross National Product (GNP).

FIGURE 4.1 Net long term resource flows to all developing countries Note: Other Private Flows consists predominately of Portfolio Flows and Bank lending (see paragraph 152). Source: IMF World Economic Outlook 2000

Supporting sound domestic policies

154. The attraction of capital inflows is an essential element of a strategy to speed up sustainable development and poverty reduction. But only a small proportion of external flows are invested directly in the micro and small enterprise sector, which are the main source of new jobs and incomes for the poor.

155. It is essential therefore that reforms to attract financial flows be complemented by other reforms which ensure that external financial services are available to the poor. These services range from simple community-based savings instruments, credit and insurance for micro-enterprises, to an efficient banking system that serves all registered businesses.

156. Foreign investment does not substitute for domestic investment but it can complement it. The challenge is to maximise the benefits of increased foreign investment, including that from transnational corporations, by creating strong links to the domestic economy (see box 7). Such measures include financial sector reform, strengthened competition and tax policy, a careful approach to capital account liberalisation and responsible behaviour by investors themselves.

157. For capital flows to be stable and productive, developing countries need to put in place improved domestic policies. And the conditions that attract foreign investment are the same conditions that generate domestic savings, promote domestic investment, and discourage capital flight. They include: an economic and political environment that is stable and predictable, supported by transparent laws, fair competition and reliable legal systems; and the reduction of administrative barriers to investment. In Mozambique for example - a country which has undertaken such reform - there has been a six-fold increase in FDI since 1994.

158. An improved investment pattern requires a strong competition policy if it is to be sustainable. This is essential to ensure that large companies, whether local or international, do not exploit monopoly power and indulge in restrictive business practices - such as market quotas and price fixing. Such practices harm consumers and constrain the growth of the small firms that create employment. Competition policy thus needs to be complemented by measures that address the needs of small enterprises, such as the provision of skills and technology, access to investment and finance, and support to increase sales in national and international markets.

BOX 7

TRANSNATIONAL CORPORATIONS Transnational Corporations (TNCs) are an important part of the process of globalisation. There are now some 63,000 TNC parent firms with around 690,000 foreign affiliates. The foreign affiliates of the top 100 TNCs have assets of the order of $2 trillion. Sales by foreign affiliates worldwide are now twice as large as global exports. Most TNCs are large companies based in developed countries but they include a growing number of firms from developing and transition economies and small and medium-sized firms. The huge expansion of international production has been facilitated by countries world-wide, including developing and transition countries, adopting more favourable policies towards foreign investors. TNCs can contribute significantly to economic development in host countries through their technology, specialised skills and ability to organise and integrate production across countries, to establish marketing networks and to access finance and equipment on favourable terms. To reap these benefits developing countries need to encourage links to the domestic economy, including linkages with domestic suppliers and subcontractors, and to promote the capacity and skills to make good use of these links. TNCs should also be subject to adequate regulation: in a world of international production, domestic policies on finance, investment, competition and taxation need to be designed and integrated within an international framework of rules. And this needs to be matched by TNCs themselves adhering to high standards of corporate social responsibility, including through the revised OECD Guidelines for Multinational Enterprises. Source: UNCTAD World Investment Report 2000.

159. Domestic tax policy is crucial. In recent years, many developing countries have offered investment subsidies, including tax incentives, to attract transnational firms. Such subsidies are intended to generate new employment. But in practice they often fail to alter the investment decisions of firms, and merely erode a country's tax base. In some cases such tax incentives have given perverse incentives for unsustainable and inefficient exploitation of natural resources such as water, forests and fisheries. The experience of Uganda and other countries suggests that simplification of a country's tax regime may be a more effective way to encourage companies to invest.

160. The pursuit of policies that encourage investment also has implications for a country's approach to the regulation of direct investment and controls on short-term capital flows. Capital controls take many forms, including outright prohibitions on certain types of foreign investment, as well as quantitative restrictions on financial flows. These controls can act as a barrier to foreign investment, particularly if they discriminate against foreign investors.

161. It is for this reason that, until recently, the international financial institutions were pushing countries to remove these controls, and to remove them quickly. However recent experience - not least the Asian financial crisis - has shown that the sequencing of liberalisation with reform is crucial. It has also shown that there are risks associated with rapid capital account liberalisation, in advance of a well functioning macro-economy, open and transparent policy-making and effective financial regulation.

162. The UK Government favours a more country-specific approach to capital controls, and a gradual approach to the opening up of capital accounts. An important part of this is to work with countries and international institutions to design 'road maps' for the opening up of capital accounts.

163. Such maps should offer guidance on the speed of liberalisation, and on the appropriate reforms needed to make it a success. Practical programmes of advice and assistance must help countries to strengthen the financial sector, including through enhanced banking supervision, stronger bankruptcy laws and property rights, an independent judicial system, and the use of private sector finance and skills.

164. In countries which have weak financial sectors and are at the earlier stages of liberalisation, there may sometimes be a case for specific measures to help to discourage excessive short-term capital inflows, whilst encouraging longer-term flows. However such measures should be viewed as a temporary means of facilitating the reforms needed to ensure orderly and sustainable liberalisation.

Strengthening the international financial system

165. While national governments have the primary responsibility for putting in place policies that encourage domestic and foreign investment, the international institutions and exporters of capital also have important responsibilities. Greater integration into global financial markets exposes developing countries to external shocks. And these shocks can lead to economic downturns and increased poverty.

166. The responsibility on the international financial institutions - the International Monetary Fund (IMF) and World Bank in particular, but also the larger OECD countries - is therefore to help manage the global economy in a way that reduces these risks and promotes economic stability, sustainable growth and development.

167. The focus of the World Bank is poverty reduction, structural reform and social development.⁸ To that end it acts as a key intermediary between the capital markets of developed countries and developing country borrowers who would not otherwise have access to those markets. The IMF has a central role in promoting international financial stability and in contributing to the establishment of sound macro-economic and financial policies, helping countries to access private capital flows.

⁸ The World Bank is discussed further in Chapter 7.

169. We also believe there is an important role for IMF medium-term lending in middle income countries in order to tackle deep-rooted structural reform. But we believe that IMF programmes should take better account of their impact on the lives of the poor.

170. We welcome the fact that the World Bank and the IMF have now endorsed the International Development Targets and that, in low income countries, the IMF's new Poverty Reduction and Growth Facility must now derive from a country's own Poverty Reduction Strategy.⁹ In both low and middle income countries it is important that the World Bank and IMF work together more effectively and seek better structures for cooperation. The recent joint statement by the World Bank President and IMF Managing Director promising an enhanced partnership between the two institutions is a good starting point.

⁹ For more on Poverty Reduction Strategies see Chapter 7.

172. But even with stronger domestic policies, there is still a threat of financial instability. The UK Government is working for further reforms in the way the international system operates. It needs to be strengthened to spot potential problems early, to prevent these problems where possible and to minimise the disruption and damage they can cause.

173. First, we need improved surveillance - better monitoring of the performance of developed and developing country economies, and greater transparency in this process. The timely availability of accurate data to investors should help to avoid sudden shocks and outflows of investors' funds.

174. Over the past two years the international community has made progress in agreeing a framework of codes and standards needed for successful participation in global capital markets. These cover data dissemination requirements, transparency in fiscal and monetary policy, financial supervision and corporate governance.

175. But these codes and standards will only work if there is an effective surveillance mechanism to monitor their implementation, so that the public and investors are well informed and can have confidence in the information provided. We believe that an enhanced IMF surveillance process (through their Article IV reviews), which draws on the work and expertise of others, provides the best framework.

176. Adopting these standards in countries at widely different levels of development requires careful consideration of sequencing and timing. Provision of technical assistance is crucial to ensure that developing countries are not left behind in this process. There are particular challenges for the poorest and small economies where banking systems are weak, domestic budgets still rely heavily on development assistance, and capital markets are almost non-existent. The UK Government is committed to establishing a new technical assistance facility to help take this work forward.

177. Second, there needs to be a strengthening of the international system's approach to crisis resolution. There will continue to be a role for the IMF in resolving crisis, but given the sheer size of private flows, private sector lenders must expect to play a part.

178. National governments can also take steps to facilitate orderly crisis resolution by forging regular and lasting contacts with their private investors, establishing overdraft facilities with international banks (to provide finance in an emergency), and making use of collective action bond clauses.¹⁰ The UK Government now issues bonds with such clauses and is encouraging other developed and developing countries to do the same.

¹⁰ If a government defaults on its bond interest payments each individual investor has an incentive to negotiate its own repayment. This can exacerbate the crisis and leave bondholders collectively worse off. Collective action bond clauses help to avoid this by preventing a minority of bondholders blocking re-negotiation of the bond repayments in the event of default.

180. Fourth, following the recommendations of reports from the Financial Stability Forum (FSF) progress has been made towards better disclosure and transparency of cross-border financial flows, of the activities of highly leveraged institutions and offshore financial centres¹¹ (see box 8). Dealing with this will require reforms to the regulation of institutions that provide credit to highly leveraged institutions as well as raising the standards of financial supervision in offshore centres.

¹¹ Highly Leveraged Institutions (HLIs) borrow substantial amounts of funds relative to their asset base to invest in financial markets. They are frequently based off-shore and are subject to relatively little regulation. By investing sizeable volumes of funds they can have a significant impact in small less developed capital markets in small and medium sized economies.

BOX 8

IMPROVING GLOBAL FINANCIAL STABILITY The Financial Stability Forum (FSF), established in 1999, brings together the finance ministries, financial regulators and central banks of major international financial centres - including the UK - to exchange information on financial market surveillance, and to address issues in financial regulation where global co-operation is important. The UK is also a member of other international regulatory groupings such as the Basel Committee on Banking Supervision, whose Core Principles for Effective Banking Supervision represents a global standard for oversight of prudential regulation and supervision. The Basel Committee is now reviewing its 1998 Capital Accord which underpins supervision of internationally active banks. The Accord sets out rules for the maximum levels of credit that these banks can extend. The rules take account of the type and maturity of the credit and the nature of the borrowers. An intention of the review is to align the relative treatment of credit more closely with the actual risks, including those associated with longer-term lending to developing countries.

International co-operation on investment, competition and tax

182. Progress on poverty reduction requires greater levels of international co-operation on investment, competition and tax. Almost all developing countries have embarked on unilateral liberalisation of their investment regimes with a view to attracting higher levels of investment. International agreements such as bilateral investment treaties, regional trade agreements and certain WTO provisions, such as Trade Related Investment Measures, offer the potential for increasing investor confidence in developing countries by 'locking in' policy commitments to which most countries are already committed.

183. The first comprehensive attempt to take this forward in a multilateral context was the proposed OECD Multilateral Agreement on Investment (MAI). The negotiations aimed to agree a set of principles based on non-discrimination between foreign and domestic investors, open investment regimes, investor protection and corporate behaviour.

184. There was a strong NGO campaign against the agreement. But the negotiations ultimately failed largely as a result of unresolved differences over questions of language and cultural industries. The OECD was not the appropriate forum in which to negotiate a genuinely multilateral agreement. But an international investment agreement could bring major benefits to developing countries.

185. Developing countries are already party to large numbers of bilateral investment agreements (increasingly with other developing countries), and the investor confidence that flows from these agreements brings great benefits (see figure 4.2). The UK Government believes there would be further benefits for developing countries from a multilateral investment agreement negotiated through the WTO, which works by consensus and where developing countries constitute two-thirds of the membership.

186. Such an agreement would need to be balanced and flexible. It would need to allow foreign investors the right to invest in agreed defined sectors, but recognise the rights of governments to set their own health, social and environmental standards. It would need to reflect the core principles necessary to attract sustainable investment. These are: transparency; non-discrimination (so that all who meet domestic standards can enter and operate in the market); a degree of investor protection (for instance against the expropriation of assets without compensation); and the extent to which investment incentives and performance requirements can be used.

187. A multilateral investment agreement should not prevent governments from legislating in favour of certain regions, or targeting support for specific sectors or enterprises, where such support is available to both domestic and foreign investors. Nor should it rule out the maintenance of restrictions on foreign investment in sensitive sectors. The Government believes that an agreement along these lines is both possible and desirable.

188. The Government also believes that an international investment agreement needs to be complemented by greater international co-operation on competition policy. In a global economy, where single companies may have a very large market share in certain sectors, there is a clear need for more effective international arrangements to deal with monopoly power.

189. The UK Government and EU partners are committed to looking at these issues within the WTO and reaching an agreement on international competition policy. The core element of such an agreement would be a requirement on all countries to introduce competition law.

FIGURE 4.2 Bilateral Investment Treaties and Double Taxation Treaties concluded in 1999 The growth of Foreign Direct Investment (FDI) has led to a growing number of bilateral treaties on investment and double taxation. Many of these are between developing countries - reflecting the growth of FDI between these countries. In 1999,96 countries signed a total of 130 Bilateral Investment Treaties, nearly half of which were between developing countries; 85 countries signed a total of 109 Double Taxation Treaties, a quarter of which were between developing countries. Source: UNCTAD World Investment Report 2000.

190. As with investment, the law would need to be based on the principles of non-discrimination, national treatment and transparency. The agreement should also reflect the needs of countries at different stages of development, consensus on handling issues such as cartels and abuse of market dominance, a commitment to co-operate across competition authorities (through the sharing of information) and increased technical assistance.

191. Taxation of the profits of transnational corporations operating in developing countries provides an important mechanism for sharing the gains from globalisation between rich and poor countries, and for reducing poverty through generating adequate revenue for investment in health and education. In the environment of highly mobile capital seeking maximum after-tax returns, developing countries are designing ever more generous and complex tax regimes to attract potential investors. There is a need for greater international co-operation to avoid this 'race to the bottom'.

192. In recent years there has been increased international co-operation in the form of bilateral taxation treaties (see figure 4.2). These protect against double tax burdens, provide certainty of treatment for cross border economic activity, and help to counter tax avoidance and evasion.

193. The conclusion of tax treaties by a developing country represents a binding commitment to international norms for taxation of income and capital. This can bring benefits in terms of increased trade and investment, as well as transfers of technology and people. The UK has 102 bilateral tax treaties - the world's largest network - of which 69 are with developing and transition economies. The UK is committed to extending coverage to include a greater number of low income countries - in particular those in Africa.

194. The Government is also seeking to promote international co-operation in information exchange about taxable income. Some countries use tax and non-tax incentives to attract investment into the financial services sector. Often these incentives take the form of zero or only nominal taxes, together with arrangements which allow non-residents to escape tax in their country of residence. Some countries also allow the ownership of financial and corporate assets to be kept offshore.

195. These practices can offer cover for tax evasion, capital flight and the laundering of illegally acquired funds that can be particularly harmful to developing countries - depriving them of tax revenues that could be used to fund public services. A recent report by Oxfam estimated that jurisdictions operating such practices have contributed to revenue losses for developing countries of at least US$50 billion^xxii.

196. The dangers are much reduced if the financial regulators and tax authorities of all countries are committed to transparency and to the exchange of information pertinent to tax liabilities arising in other jurisdictions. From April 2001 the UK will have new powers to exchange information with the home tax authorities of non-residents. The government endorses the call by Commonwealth Finance Ministers in Malta in September 2000 for greater regional and multilateral co-operation on these issues. We will work with both the Commonwealth Secretariat and the Commonwealth Association of Tax Administrators to this end.

Promoting corporate social responsibility

197. The private sector has a key role in making globalisation work better for poor people. In recent years, there has been growing public interest in corporate social responsibility. This has brought issues such as child labour, corruption, human rights, labour standards, environment and conflict into trade, investment and supply chain relationships.

198. By applying best practice in these areas, business can play an increased role in poverty reduction and sustainable development. Many companies have also realised important commercial benefits, in terms of reputation, risk management and enhanced productivity. Greater business engagement can be encouraged by improving understanding and raising awareness of the potential benefits for business from socially responsible behaviour.

199. Voluntary initiatives, including codes of conduct, labelling and reporting on social, environmental and economic impacts (triple bottom line reporting) are frequently undertaken with trade union, NGO and government involvement. A number of these initiatives have created important trade opportunities, but others have acted as de facto trade barriers. A number of these difficulties have been due to insufficient understanding of the implications for developing country producers in terms of competition and compliance with these standards.

200. Appropriate consultation and assistance programmes can maximise the opportunities for developing country producers. The UK Government, for example, provides support to programmes such as the Ethical Trading Initiative, which helps to improve working conditions in the international supply chains of its members. The Fairtrade movement has also been successful in niche markets such as coffee and chocolate.

201. The UK Government strongly supports the revised OECD Guidelines for Multinational Enterprises. These provide norms for companies investing abroad, including compliance with the policies and laws of host countries, information disclosure, and respect for environmental sustainability, human rights and internationally recognised core labour standards. As discussed in Chapter 2 we will legislate to give UK courts jurisdiction over UK nationals who commit offences of corruption abroad. We also support the work of the United Nations Global Compact, which has developed key principles for the conduct of multinational enterprises.

202. We have introduced an amendment to UK legislation which requires pension funds to state the extent to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments. This should enable people saving for their own retirement to make a real contribution to responsible and sustainable global development.

203. The UK Government also encourages major companies to publish information on their environmental, social and ethical policies - something many of the largest UK firms are now doing. We strongly support this process and will establish a joint working group with both the Confederation of British Industry (CBI) and the National Association of Pension Funds, to develop guidelines for the coverage of these policy statements and their content. We will also consider whether further changes are needed in the context of the ongoing review of UK company law^{xxiii, xxiv}.

204. The challenge is to extend responsible business practice throughout the business community and to improve the quality and co-ordination of voluntary initiatives. The UK Government has recently appointed a Minister for Corporate Social Responsibility to promote the commercial case for greater engagement of business in this area and to co-ordinate work across the UK Government. We will be working with business to produce an integrated strategy which will consider where voluntary initiatives by business can add most value, and what should be done to promote best practice in global supply chains and in the operations of business in developing countries.

205. The UK Government has agreed to evaluate the extent to which public procurement is a cost-effective means of influencing social, health, environmental and developmental outcomes. We will also consider how far we should press for this in the EU and wider international discussions on procurement regulations and practice^xxv.

206. The UK Government has concluded a major review of the operations of the Export Credits Guarantee Department (ECGD). We will now put in place a new code of business principles in relation to ECGD covering developing countries, sustainable development, transparency, human rights, and business integrity. We are encouraging other export credit agencies within the OECD to do the same. In relation to this we are strongly supportive of the initiative in the OECD export credit group to develop guidelines for export credit agencies on the environmental and social impact of projects.

207. ECGD will report annually against its new code and will appoint a more broadly based Advisory Council to advise, develop and review ECGD's performance against the new business principles. ECGD also seeks specific undertakings from those applying or benefiting from ECGD support that bribes are not being paid, and have not been paid on the contract in question.

208. Since September 1997 the UK has ensured that official UK export credits for HIPC countries are for productive purposes only, and do not contribute to another build-up of unsustainable debt.¹² Since January 2000 this policy has been extended to other poor countries.¹³ And in July 2000, at their summit in Japan, G7 leaders supported a multilateral approach to ensure that export credits to HIPCs and other low income countries are not used for unproductive purposes. This is being taken forward in the OECD, where the UK is pushing for early and substantial progress.

¹² Expenditure for productive purposes is defined as expenditure which contributes to a country’s economic and social development.

¹³ Poor countries refers to those eligible to borrow from the World Bank on highly concessional (IDA) terms.

Encouraging private investment into developing countries

209. Even with good policies in place, it can be difficult for some developing countries to stimulate domestic investment and attract foreign investment. Foreign investors, in particular, often have exaggerated fears about the risks of investing in developing countries. Specific policies are needed to help investors to distinguish better between high and low risk environments.

210. Since 1948 the Commonwealth Development Corporation (CDC) has been the UK Government's main instrument for investing directly in commercial activities in poorer countries. In the 1997 White Paper we indicated our commitment to enlarge the resources at CDC's disposal by introducing private sector capital and turning CDC into a partnership between Government and the private sector, to encourage greater flows of beneficial investment into poorer countries.

211. The purpose of this partnership is to maximise the creation and long-term growth of viable business in developing countries (especially the poorer countries), to achieve attractive returns for shareholders in order to demonstrate that there are profitable investment opportunities in developing countries, and to implement social, environmental and ethical best practice.

212. Following the passage of the CDC Act 1999, CDC has been transformed into a public limited company. CDC is implementing a new code of business principles. CDC has also adopted a new investment policy. This requires 70 per cent of all investments to be in poor countries, and aims to make at least 50 per cent of investments in sub-Saharan Africa and south Asia. This is protected by the Government's golden share. We will continue to urge the private sector arms of the Multilateral Development Banks, such as the International Financial Corporation, to commit a higher percentage of their portfolio to the poorest countries.

213. At the same time, CDC is shifting its portfolio towards the provision of equity in private business, and is positioning itself to attract private sector involvement. The Government will invite the private sector to take a majority share-holding in CDC while retaining a substantial minority holding.

214. Trade Partners UK is encouraging British business to invest more in developing countries, and to operate in a socially and environmentally responsible way, and thereby to contribute to the Government's objectives for poverty reduction.¹⁴

¹⁴ Trade Partners UK is the trade development and investment arm of British Trade International. It has responsibility for the delivery of export support in the English regions and works closely with the devolved export support promotion organisations of Scotland, Wales and Northern Ireland.

BOX 9

FINANCIAL INSTRUMENTS SUPPORTING INVESTMENT IN DEVELOPING COUNTRIES The UK will launch an Africa Private Infrastructure Financing Facility (APIFF) in 2001. This will address the near absence of long-term lending to private infrastructure projects in sub-Saharan Africa. Unfavourable perceptions of country risk and structural obstacles within domestic financial systems can leave potentially productive investments unfunded. APIFF will operate as a senior debt fund using grant money to leverage loans from participating banks and open to other development agencies. Once a successful track record of deals has been established, we expect commercial banks to increase their lending. The Financial Deepening Challenge Fund aims to mobilise the international and domestic financial services sector to invest in financial services in poorer countries and to make these services more accessible to the poor. The Fund is initially focused on Eastern, Central and Southern Africa and on south Asia. The Business Linkages Challenge Fund, to be launched in early 2001, will support enterprises in developing countries to form linkages with domestic and international partners. It will facilitate knowledge transfer and improve access to the information and markets necessary to compete in a global economy.

215. In line with this, Trade Partners UK will encourage British business to take advantage of the financial and investment mechanisms available through CDC, ECGD and the Challenge Funds discussed in box 9. A lot of progress has already been made through schemes such as the South Africa Partnership Programme. This helps small and medium sized companies from both countries to develop long-term business partnerships. We will also encourage British companies to access investment guarantees such as those available through the Multilateral Investment Guarantees Agency (MIGA) and the UK's ECGD.

THE UK GOVERNMENT WILL: · Support a country-specific approach to capital account liberalisation, that takes proper account of a country's ability to sequence and manage the risks associated with greater openness, including through helping to develop 'road maps' to guide the process. · Support a continued IMF role in both low and middle income countries, and ensure that IMF policies support poverty reduction and sustainable development. · Establish a new technical assistance facility, to help developing countries implement the new financial codes and standards. · Support the inclusion of agreements on investment and competition as part of future multilateral trade negotiations in the WTO, and work in parallel to help developing countries to build capacity and encourage closer regional co-operation on these issues. · Work to build support for consultations beyond the OECD with developing countries on taxation issues, and extend the coverage of the UK's bilateral tax treaties to include more low countries. · Continue to strengthen our work to promote corporate social responsibility, particularly with regard to greater disclosure of social, environmental and ethical policies. · Establish the Commonwealth Development Corporation as a vibrant public/private partnership providing equity financing in the poorest countries, and develop a new facility to improve the availability of long-term debt finance for private sector investment in infrastructure in Africa.