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$2 lost for every $1 gained: New report shows global financial system fails developing countries

Added 18 Dec 2014
*A Toolkit for the Media is available with this press release. Please click here to download. 

Developing countries are losing twice as much money as they earn because of issues like tax evasion, profits taken out by foreign investors and interest repayments on debt.

A new report – The State of Development Finance for Developing Countries, 2014 – has found that for every dollar developing countries have earned since 2008, they have lost $2.07. 

Furthermore they have lost, on average, more than 10 per cent of their Gross Domestic Product (GDP) through these financial losses.

Report author Jesse Griffiths, Director of the European Network on Debt and Development (Eurodad), said: “The results of our research are shocking. We are not talking about all flows of money out of developing countries, just lost resources – money that should have been invested to support development, and was instead drained out. It is outrageous that the global financial system is skewed so much against developing countries.”

The report finds that:
  • The biggest loss was through illicit financial flows – money that was illegally earned, transferred or used – which cost developing countries $634 billion (€509 billion) in 2011.
  • The second biggest loss is the profits extracted from developing countries by foreign investors: totalling $486 billion in 2012. In fact, since 2008, foreign investors have been taking more profits out of developing countries than new investments have been coming in.
  • The third biggest loss is the money that developing countries are lending rich countries by buying (mainly US) bonds. This totalled 1.2% of their GDP - $276 billion (€222 billion) in 2012.
  • The fourth biggest loss for developing countries is interest repayments on foreign debt, totalling $188 billion (€151 billion) in 2012.
These losses far outweighed financial inflows through foreign direct investment, aid, portfolio equity (stocks and shares), charitable money and remittances from migrant workers. 

Jesse Griffiths said: “What is clear is that the global economic system is failing developing countries. However, the solutions are on the table. For example, the UN has promised to create an international legal framework that would introduce a fair and rapid way of resolving debt crises by the end of 2015: it’s time to hold them to that promise.”

ENDS


For more information, or to request an interview, please contact Julia Ravenscroft, Communications Manager at Eurodad, on +32 2 893 0854.

Notes to Editors:
  • Download a toolkit for journalists for all you need to know about the report here.
  • Eurodad has worked with CSO allies from around the globe to develop focused recommendations to tackle the issues raise in this report. Those recommendations can be found in our joint position paper towards the Third UN Conference on Financing for development here