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Banks
Group Forecasts Small Rise in Emerging Market Investment
(2003
capital flows still well below average for previous decade,
IIF says)
By
Bruce Odessey
Washington File Staff Writer
15
May 2003
Washington
- A group representing hundreds of private banks and other
financial institutions forecasts that net investment flows
to developing countries will rise in 2003 but remain at a
historically low level.
At
a May 15 New York press conference that was telecast, the
Institute of International Finance (IIF) issued a report forecasting
that private capital flows to emerging markets, dominated
by direct foreign investment, would increase to about $139,000
million in 2003 from about $110,000 million in 2002, well
below the annual average $186,000 million of the past 10 years.
Charles
Dallara, IIF managing director, said the level of private
capital flows to developing countries was last this low during
the 1980s debt crisis.
"This
situation remains quite weak," Dallara said. "The
level of flows is nothing to be overly confident about."
He
offered a few reasons for why investment flows have not picked
up significantly since the Asian crisis in the late 1990s:
lack of corporate profitability in wealthier countries that
is hindering domestic and foreign investments, a slowdown
in privatization by developing countries, and questions about
whether emerging markets, especially Argentina, would respect
rule of law and sanctity of contracts.
At
the same press conference William Rhodes, senior vice chairman
of Citigroup, expressed concern about a surge of international
demand for emerging market sovereign bonds. He warned that
investors should look not only at high interest rates but
also at economic policies and performance in countries issuing
the bonds.
"We
have to be careful that we don't go chasing yields again,
as we have done several times in the past, at the risk of
not exercising prudent credit judgment," Rhodes said.
He
said that part of the higher demand could be attributed to
"solid policy performance" in Mexico and Brazil.
The
IIF projects "somewhat" improved economic prospects
for the United States in the second half of 2003 as a result
of the brevity of the Iraq war and the fall in oil prices
although it cautions that the level of U.S. corporate investment
is expected to remain "tepid." It says the outlook
for the European Union (EU) and Japan remains weak.
Dallara
said that Argentina's new leaders would have to achieve comprehensive
restructuring of the country's banking system in order to
regain access to global capital markets. Rhodes said Argentina
would have to reaffirm its commitment to private contracts
and improve its fiscal policy, especially in making provincial
governments more responsible for their financial obligations.
IIF
forecasts net capital flows to Latin America reaching about
$34,000 million in 2003, up from $14,000 million in 2002,
reflecting an expectation of recovery for nearly all big economies
there except Venezuela.
It
forecasts net capital flows in 2003 to Europe's emerging markets
to stay at about the $31,000 million 2002 level, up from $14,000
million in 2001.
In
Iraq, Dallara said, the highest financial priorities are stabilizing
the currency and restructuring the banking system.
Following
are a few key figures:
Emerging
market economies' external financing
Billions of dollars (billion equals 1,000 million)
1996
2000 2001 2002 2003
Net
private flows 329.1 193.6 129.9 110.2 139.1
Net
direct equity 92.2 137.6 140.6 111.0 108.8
Net portfolio equity 32.3 14.0 8.5 -3.2 6.3
Net commercial bank credit
123.7 0 -25.0 -10.1 -1.1
Net credit from private nonblank lending
81.0 42.0 5.8 12.4 25.1
(The
Washington File is a product of the Bureau of International
Information Programs, U.S. Department of State. Web site:
http://usinfo.state.gov)
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