WASHINGTON, Mar 2 : Private Investment in developing,, countries rose to an unprecedented level In 1994, encouraged by economic reforms and reduced debt burdens, says a new. International Finance Corporation (IFC) study, according to USIS.

Developing country reforms have freed resources for in- . vestment, opened economies to international' trade and finance and reduced investor risk, said the IFC, a private-sector affiliate of the World Bank.

Private investment amounted to 18 per cent of the combined gross domestic product (GDP) of the 41 main developing countries, said the IFC. This level of private investment is 4.6 percentage points higher than the average Eirivate-investment level dur-ng the 1980s. said the IFC study, entitled "Trends in Private Investment in Developing Countries’.

There were significant increases in private investment

in the largest developing economies, such as Argentina. Brazil, Indonesia and Turkey, but also in a number of smaller ones, including Cote d’Ivoire, Egypt. El Salvador, Madagascar, Mall. Nepal. Peru and Sri

Large disparities, however, existed in investment rates when measured on a regional basis, the IFC said.

East Asia enjoyed the highest investment levels. Thailand ranked at the top of the IFC's list with 1994- private irivest-ment equal to 30.2 per cent of GDP. "In marked contrast." the study said, were "the Tow,, and falling Investment rates in Sub-Saharan Africa." Investment rate's in the Latin American region stood between these extremes. and for some, countries, such as Argentina', Chile. El Salvador. Mexico and Panama, they have risen dra-matioally in recent years.

Investment rates in South Asia, the Middle East and North Africa advanced In 1994, but were rising from

comparatively low levels. The study did not cover the former Soviet Union, Eastern Europe, Vietnam or China.

Meanwhile, the developing world's public investment-to-GDP ratios continued to decline. In 1994, average public investment rates in developing countries were down to about 6 per cent Of GDP, far below their average level of around 10 per cent In the late 1970s, the study said.

"Privatisation programmes in many countries have contributed to the decline in pub lie investment." the study noted. "Many economic functions that previously absorbed investment resources have since been transferred to the private sector."

The private investment data for '1994, collected by the IFC from countries' statistical agencies, is the most recent available.

During 1994. the private savings in developing countries themselves continued to be the main source of finance for

private investment. But. the study added, long-term capital inflows from industrial countries are playing an Increasing role In mo,st regions, particularly Latin America.

External capital flows to the private sector of developing countries — including the rela-. tlvely new component of portfolio investihent — rose from $33,000 million In 1990 to almost $83,000 million in 1993.

Because of the large amount of highly liquid portfolio investment. in 1994 the capital flows declined to 70.000 million dollars. "Reduced portfolio investment more than offset Increased long-term borrowing and net foreign direct Investment flows." the study said The decline In portfolio flows In 1994 were a result of factors such as higher industrial country interest rates, lower "risk-adjusted" returns on In vestments tn a number of developing countries and fewer privatisations.

The Mexico peso crisis in

late 1994 and early 1995 caused .a large outflow of portfolio investment from developing countries in the first quarter of 1995. By the fourth ■ quarter of 1995. however, this outflow appeared to have largely been reversed, according to the IFC..

The economic reforms and reduced debt burdens in developing countries — the result of decade-long efforts to implement reforms and to reduce excessive indebtedness — have contributed In several ways to the investment increase. the study said. The reduced public sector debt burdens have freed domestic resources to finance increased Brivate-investment spending ut also, they have brought "generally favorable re assess ments of the transfer risks attached to investment in devel oping country assets, thereby making It much easier for prl vate companies tn those conn tries to raise money tn world' capital markets, it said

The reforms and reduced

^indebtedness hav? tn particular helped stimulate foreign direct investment, .which in aggregate increased for the fourth consecutive year in 1994 Excluding China (which is the largest developing-world recipient of foreign direct investment). Vietnam. Eastern Europe and the former Soviet Union, cumulative direct-investment flows to developing regions were $113.000 million during 1990 94 compared to 95.000 million dollars for all of the 1980s. the report said.

The bulk of this Investment has gone to a small number ot large recipient countries

The reduced indebtedness has reassured foreign compa nies about the remittance of direct-Investment earnings In addition, "reforms of legal and regulatory regimes, and out ward-oriented economic poll ies designed to promote trade and investment likely brought about steep shifts in expectations regarding the costs and benefits frvnj direct investment spending, the study said