Executive Vice President Lars Thunell marked IFC's 50th Anniversary year with a program in Hong Kong on May 10 that looked toward a changing world where emerging markets move to the center of the world economy and more Asian companies become multinational business leaders.
Mr. Thunell said IFC is well positioned to contribute to the needs of Asian business and to help ensure that the private sector continues to play a leading role in regional development. "We hope our commitment to achieving strong financial returns while promoting high standards in corporate governance and environmental and social practices can serve as a catalyst for private investors to channel more resources to companies that can operate successfully in the neediest parts of the world," he said.
A banner year
IFC’s 50th Anniversary celebrations take place in the context of a banner year of emerging market performance. Developing country economies in East Asia and the Pacific are expected to grow an average of 8.0 percent in 2005 and 2006, boosted by strong growth in China, Indonesia, and Vietnam. Growth in China continues at high rates while inflation remains under control. China is receiving roughly $50 billion in foreign direct investment annually, and Asia-Pacific as a whole is enjoying flows of well over $100 billion.
Speakers at the event included Joseph Yam, chief executive of the Hong Kong Monetary Authority; Ronnie Chan, chairman of Hang Lung Group; Mark Mobius, managing director of Templeton Asset Management Ltd; Daniel Carroll, managing partner of Newbridge Capital, and Mark Clifford, editor-in-chief of the South China Morning Post, all commented that Asia’s emerging markets were in good shape.
Daniel Carroll of Newbridge was upbeat: “Ten years ago Southeast Asia was written off. But a commitment to stable democratic growth and an openness to foreign investment mean it’s a pretty exciting time,” he said.
“The emerging markets of Asia should continue to do well given the strong shape of the US economy, the resurgence of Japan and emergence of China,” said Ronnie Chan of Hang Lung.
Urging caution
Although Mr. Chan was optimistic overall he cautioned that the good times for emerging markets in Asia would not last forever. “For those of us operating in this region we should always keep trouble in our peripheral vision,” he said.
Mr. Thunell agreed and noted that many parts of Asia and the Pacific were not sharing in the present prosperity and there remained a huge unfinished agenda.
“For all the progress of the emerging markets, we still see extreme poverty. Some 700 million people in East Asia and the Pacific still live on less than $2 per day, of which more than 500 million are in China,” he said.
“Private investors are not flocking to places like Cambodia, western China, eastern Indonesia, Laos, Papua New Guinea, or Timor Leste,” he added.
Priority areas
Mark Mobius of Templeton said that although times were good for emerging markets, they still had a long way to go and would need to grow quickly in the capital markets arena. Corporate governance, he argued, would be a key factor in this development. “Corporate governance is critical for performance. Companies with good corporate governance give much better returns to their shareholders. But government and capital market regulations in many emerging markets often prevent the exercise of good corporate governance. The dominance of certain shareholders is also very prevalent,” he said.
Environmental and social issues also remain firmly on the agenda, said Mr. Thunell.
“The environmental and social impacts of Asia’s growth have undermined some of the development gains achieved by high growth. If private businesses want to continue to lead growth they must take an active role in addressing these environmental and social challenges,” he said.
Mr. Thunell said IFC would continue to assist Asia in developing better and more diverse financial institutions to support private companies and their efficient contribution to development.
“Our work has ranged from pioneering the Panda bond market in China, to investments and loans to Chinese and Indonesian banks, to support for microfinance in Cambodia, Mongolia, and the Philippines. But our work is far from done. We will continue to focus on supporting financial institutions as well as providing direct financing because companies need better access to finance across this region. This remains a significant challenge across the developing world,” he said.
50 years of progress
Praising IFC for its role in fostering international standards and best practices in the Chinese banking sector, Joseph Yam of the Hong Kong Monetary Authority congratulated IFC on its 50th year. “IFC is the positive face of international financial flows. You have much to celebrate and much to be proud of,” he said.
“If there was not an IFC today, we would need to create one, so thank you to IFC,” added Mr. Chan.
The event, entitled “The Future of Asia’s Emerging Markets”, was attended by some 200 IFC clients, guests, journalists, and senior staff from the East Asia and the Pacific region.
IFC’s crucial role
Over the past 50 years IFC’s role in the emerging markets has evolved from pioneering foreign direct investment to creating the first equity funds for developing countries and introducing more advanced products and initiatives, such as local currency bond issues, securitizations, and carbon emissions credits.
Today IFC is the largest multilateral provider of financing – loans, equity, risk management, and structured finance products – in the developing world. In addition, the Corporation serves as a catalyst and laboratory for innovative, market-based solutions for reducing poverty and addressing environmental and social challenges.
From its founding in 1956 through FY05, IFC has committed more than $49 billion of its own funds and arranged $24 billion in syndications for 3,319 companies in 140 developing countries. IFC’s worldwide committed portfolio as of FY05 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications.
