07 March 2005	Monday	25 Muharram 1426

THE reverse net resource transfers from developing to the industrialized world continue to increase for the seventh consecutive year, reaching an estimated total of $312 billion last year.

On the other hand, for a number of countries covered by the heavily indebted poor country (HIPC) Initiative and other debt-relief measures, debt sustainability is proving elusive.

The UN report on World Economic Situation and Prospects 2005 showa that HIPC progress remains slow, making it so much more difficult for developing countries to find the much needed additional resources for development.

As a result of low net financial flows and large foreign exchange reserve accumulation by developing countries, net outward financial transfers from developing countries continued to increase in 2004, reaching a level of over $312 billion according to preliminary estimates compared to $268.5 billion in 2003.

For the seventh straight year, developing countries as a group have transferred resources to developed countries. (At the start of this trend, in 1998, such negative transfers from developing countries amounted to only $35 billion.)

Net transfers from Eastern and Southern Asia moderated, but remained at a high level (at about $138 billion). As a result of continued external surpluses, countries in the region continued to accumulate large holdings of foreign exchange reserves, mainly low-risk securities of developed countries. Exchange intervention in order to stabilize currencies with respect to the dollar has added to these accumulations.

While the majority of these increasing reserves continue to be invested in United States securities, there has been evidence over the year of Asian central banks and oil-exporting countries increasing the diversification of their reserve holdings to include more euro denominated securities.

Nonetheless, the increase in dollar holdings in 2004 continued to be an important source of financing for the current-account deficit of the United States. Net financial transfers from Latin America increased in 2004 to over $66 billion, mirroring the improved trade and current-account surpluses for the region as a whole.

In contrast with the recent past, this result was largely due to robust export growth relative to strengthening of import growth. The financial outflows were used to make debt repayments, but there was also an increase in official reserves for precautionary purposes.

HIPC & other debt-relief measures as at the end of December 2004, 15 countries had reached their completion point², qualifying them for debt relief under the HIPC initiative. Another 12 countries had reached their ³decision points, making them eligible to receive interim debt relief.

The implementation of the Initiative thus continues to progress slowly, owing mainly to the difficulty that eligible countries have in complying with the conditions required to receive debt relief.

Notwithstanding the increased resources that debt relief makes available, HIPC countries continue to face difficulties in reconciling the objectives of achieving and maintaining debt sustainability, promoting long-term growth and reducing poverty. - Courtesy: South Centre