New trends in economic management repeatedly lay stress on the private sector, which is increasingly seen as the locomotive for development in countries served by the Fund. The private sector plays a growing role in the development and management of developing countries' economies, in solving development problems, and in providing goods and services that were traditionally provided for or handled by the public sector.

The public sector is predominantly viewed as a catalyst, facilitator, and partner in development. Its role should be to create and maintain an enabling environment for the private sector by establishing appropriate regulatory and legal foundations, by maintaining macro-economic stability and the rule of law, and by protecting the public good and the vulnerable members of society. However, the private sector should provide the engine of growth.

Among the factors explaining this trend is a growing consensus that the private sector, operating in a conducive environment, leads to greater productivity and job creation, and can make a major contribution to sustainable development and the alleviation of poverty. The prevailing economic doctrine has shifted from state intervention and centrally-planned socio-economic development to market-driven processes led by the private sector.

As a result, the demand for access to adequate sources of private sector financing, including risk capital and innovative forms of long-term project financing, has exploded beyond the capacity of local money and financial markets. However, the chances of creating a vibrant and competitive domestic private sector remain slim in those countries where the financial sector is not sufficiently developed to ensure the mobilization of long-term financial resources, the level of domestic savings is too low to stimulate local investment, and foreign investment has materialized hardly or not at all.

The challenges are even more daunting in view of the revolutionary changes world industry is undergoing as a result of globalization. The rapid transformations in terms of production, technology, and investment structures are widening the industrialization, financing and technology gap among nations. This has put mounting pressure on the private sector in developing countries, which needs to become more competitive and to gain access to markets, technologies, skills, and know-how. Failure to do so could result in further marginalization of particularly the poorest countries.

Recognizing the importance and growing role of the private sector in development, and appreciating the formidable challenges confronting the private sector in developing countries today, the Fund has taken measures to step up its activities in support of private enterprises. During the past year, it has actively studied ways and means to increase its profile in promoting the private sector and all its ramifications, and to embark upon new activities that could double its support to private entrepreneurs. The Fund's main rationale for enhancing its involvement in private sector development is the belief that the private sector serves developmental purposes, while its competitive discipline can increase efficiency and help developing countries to integrate regionally and into the global economy.

The Fund has always endeavored to take into consideration the priorities established by the recipient countries themselves. Consequently, it has provided financing to the private sector since almost the inception of the institution. This financing has taken the form of lines of credit to national development banks for the ultimate benefit of a large number of small- and medium-scale enterprises. All funding has been channeled through national governments, which have carried the loans and entered into subsidiary loan agreements. The funds were subsequently channeled to the ultimate beneficiaries of the loans.

The expansion of the Fund's assistance to the private sector thus represents an evolution in the institution's development, rather than a change in direction. It constitutes a conscientious and persistent effort to accommodate the new orientations and changing needs of beneficiary countries, and to reinforce the effectiveness of the Fund's support by engaging in constructive change. The Fund is assisted in this endeavor by the adaptability of its working methods, and its ability to respond quickly to the constantly evolving requirements of the development enterprise.

The Fund seeks to embark upon new and additional activities in support of the private sector in partnership with all stakeholders involved, including micro-, small- and medium-scale private enterprises, national governments, and financial intermediates. In addition, the Fund would welcome coordinated and complementary action on the part of development finance institutions in order to pool resources and jointly engage in activities that could maximize the impact of the assistance provided in times of increasingly scarce resources for development.

It should be noted that the Fund aims at enhancing its involvement with the private sector without jeopardizing the sustainability of its existing operations. Recognizing that the roles of the public and private sectors are complementary, the Fund seeks to balance its public and private sector operations by promoting a proper role for the private sector that does not diminish the role of the state, but strengthens its traditional functions. Together, the public and the private sector should go hand in hand to form a harmonious and lasting coalition for equitable growth and sustainable development.




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