Submitted by Kalman Kalotay, Nov 9, 2006 06:04

For us who prepared UNCTAD's World Investment Report 2006, it's puzzling to read Messrs. Sternberger's and Easterly's misplaced comments in the opinion column of October 19, 2006 ("Crowding Out The U.N."). We are not sure if they are talking about what's really written in the report. We do not say at all that the move of private equity firms into the developing world is a bad thing. We think that as any new phenomenon, this trend raises a number of questions and deserves further analysis. To do so, we needed to summarize what both critics and advocates were saying, but without taking a position. When it comes to positive effects, the text that Mr. Sternberger qualifies to be "technocratic caterwauling" says clearly that "Venture capital from foreign private equity firms may well help developing countries create firms that could become a Xerox, a Microsoft or an Apple of the future".

Nor do we talk about "short-termism". You will not even find once that word in the report. We are rather saying that the majority of private equity investments have a shorter time horizon than usual foreign direct investment, although that distinction is not absolute for two reasons: One, private equity investors are increasingly taking equity positions with a time horizon of 5 to 10 years; two, under shareholder pressure for high and rapid returns, traditional direct investors, too, could be driven increasingly by shorter-term performance targets.

Do we really misunderstand or misinterpret the strategic motivations of private equity fund investors as Ms. Sternberger would like to believe? "The aim of the investors is to earn profits (mainly in the form of capital gains) by helping the acquired companies to grow over several years through the provision of financial resources, advice, networking and knowledge." It's practically the same thing that Marshall Stocker says in the article. And amazingly it's there in that bureaucratic report...

Let me also remind the readers of that opinion page that, foreign direct investment, too, is an overwhelmingly private-sector activity. Hence Mr. Stocker's words on the efficient allocation of resources should apply not only to private equity funds but also to (other) foreign direct investment. We are also grateful for his comments that we should rather focus on government policies. We hope he has read the forty-plus-pages chapter exactly on that.

As for Mr. Easterly's colorful comments on UNCTAD and Paris Hilton, I do not know if he really said what is written there, or his original words have been somewhat modified in editing. It is unusual to hear from the mouth of a man who worked for sixteen years for a United Nations specialized agency called the World Bank that the work of another United Nations agency (UNCTAD's World Investment Reports) that his own organization was using extensively is utter nonsense. I can bet with you that the World Bank analysis that he personally supervised refers extensively to the World Investment Report series which we have been publishing annually since 1991. Naturally, we do not aim to be a "spokesperson" about FDI but for impartial analysis. We hope that's the real basis for credibility.

By the way, we are very grateful for that thing on Paris Hilton and chastity. That will increase the popularity of our report enormously, we hope. Thank you again.

Kalman Kalotay

United Nations Conference on Trade and Development

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