Developing countries: Is secure to invest in them?

Developing countries: Is secure to invest in them?

Usually we find that a developing country is a temptation to make investments, they need to grow (unemployment is not controlled, poverty exists, distribution of income is not equal, etc.). So, in a word, they try to attract capital into their countries; sometimes offering more opportunities that the ones really exist.

In some of these countries even the interest rate they offer is very high in comparison with the market one (we can talk about 2 times above regular rates).

The try to attract capital through public bonds that sounds very nice at the first look at them, but was it’s not taken into consideration is that those public debts will be paid in five, ten or even more years and that by that time these governors won’t be there any more! So, is the future government prepare – or willing – to pay investors back? Are we sure that that money that is obtained in this way is going to be used in a correct way (lets say investment in public areas that help the society, like education, health care, transport, roads, etc.), or used for “private benefits”

Are there laws that protect investments or the government is free to manage the banking system using the figure of “emergency laws” and can appropriate those funds (or part of them) to cover the emergency?

Can they issue more public bonds to pay the interests from the previous ones?

Are they just exporting primary sector products or there are industries that convert these resources into products (value added idea)?

These are some of the things that I think have to be taken into consideration in order to see if the investment is going to be a real thing or if it’ll turn into a loosing point.

Prof. Lic. Fernando Julio Silva, MSc.

September 2006