Washington, DC — Stronger capital markets and financial sectors could facilitate economic growth in sub-Saharan Africa, says a senior Bush administration official.
Addressing a July 8 forum in Washington, Paul Applegarth, chief executive officer of the United States' Millennium Challenge Corporation (MCC), said helping developing countries strengthen their financial sectors should be an "explicit objective" of future U.S. aid efforts and a complement to other development programs.
The MCC is a Bush administration initiative to build on existing U.S. aid programs by channeling additional funds to countries that govern well, invest in education and health care, and adopt market reforms.
Applegarth said that helping to develop poor countries' financial sectors would support U.S. strategic interests and bilateral and multilateral initiatives including those focusing on counter-terrorism, transparency, improved governance and trade.
The meeting on Capitol Hill sponsored by the Center for Strategic and International Studies (CSIS) highlighted the CSIS African Policy Advisory Panel's report to Secretary of State Colin Powell. CSIS is a Washington-based research insitute.
In his contribution to the report, Applegarth recommended that the United States institutionalize aid for capital market and financial sector development and that the MCC take a leadership role in that effort. The United Sates also could encourage other donors and the international financial institutions to support financial sector development, he said.
"An attractive aspect of including capital market development in a country's development program is that financial sector improvements should be less expensive than, for example, infrastructure or traditional poverty alleviation efforts," Applegarth wrote in the report.
Applegarth said the U.S. government needs more people with capital market and financial skills to provide technical assistance to developing countries. He said U.S. universities and the private sector could do more to provide financial training for U.S. officials and legal and regulatory training for developing country personnel.
Technical assistance could be concentrated in such areas as strengthening domestic banking institutions, payments systems, pension and insurance systems, social security programs and small- and medium-sized enterprise finance, he said. It would include help for consolidating sub-Saharan stock exchanges, he added.
Capital market and financial sector development promotes private sector growth by providing access and ease in moving financial resources, Applegarth said.
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"The extent that existing firms can borrow and grow, the ability of emerging firms to act entrepreneurially, their willingness to invest in their assets and the ability to allocate their assets freely -- all factor into economic growth," Applegarth wrote.
Financial sector development also could help mobilize savings and make more resources available for investment at the local level, Applegarth said. With low levels of savings, he said, poor countries lose out on the investment potential of much their local wealth.
Developing the sector also could help increase the flow of workers' remittances from overseas, which are a rapidly growing source of private capital in developing countries, he said.
In terms of U.S. strategic interests, Applegarth said that regulated and transparent financial sectors are crucial to countering money laundering and terrorist financing networks.
The MCC can help countries receiving its funding to build financial development programs into their country agreements, Applegarth said.
(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
