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India gives reverse aid to US

April 20, 2004 11:00 IST

With huge accumulated foreign exchange reserves at their disposal, developing countries, mainly India, China, Russia, Brazil and Mexico, are giving invaluable reverse aid to the United States, although it is not counted as aid and not meant as such, World Bank officials have said.

In the last two years, these five countries have built up large foreign exchange reserves of which they either keep in the US treasury or buy US Treasury bonds, bank officials said at the release of annual Global Development Finance report on Monday.

Francois Bourguignon, World Bank's Chief Economist; Hans Timer, who tracks global trends; and Mansoor Dailami, principal author of the report; acknowledged that these countries have large unmet infrastructure needs but said the accumulated reserves cannot be used to correct that because it requires expertise and other factors which central banks are not competent to provide.

However, the building up of the reserves indirectly attracts foreign capital to the countries.

Foreign direct investment, the report notes, can flow from business decisions to outsource services. A good example is FDI in IT and business process services in India.

During 1996-2002, India "with its low-cost, English-speaking and IT-savvy labour force" attracted almost $1 billion in FDI, some of which went into setting up call centres.

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