Net Capital Flows to Emerging Markets Rose Sharply in 2004
In a January 19 news release announcing the annual report on private capital flows, the private-sector Institute of International Finance (IIF) said that net flows to emerging economies rose by one third in 2004 to $279 billion and are projected to fall only slightly to $276 billion in 2005.
The level in 2004 was the highest since 1997 and more than twice the level of 2002, IIF said.IIF is a global association of big banks and other financial service institutions.
The increase in 2004 was registered in all areas of private capital including long-term direct investment, bonds, portfolio equity and commercial bank lending, William Rhodes, IIF vice chairman, said in the release.
He said that the increase reflects growing investor confidence in the performance of major emerging market economies such as Brazil, Mexico and Turkey.
Asia, which has been receiving most of the private capital flows in recent years, is projected to remain the main destination for investors in 2005, IIF said.
The institute said that net repayments to official creditors from emerging market economies are projected to rise from $18.5 billion in 2004 to $35 billion in 2005.
Major risks to continued high-level capital flows to emerging markets are a possibility of higher-than-expected increases in U.S. interest rates, disruptive foreign exchange fluctuations, concerns about global financial imbalances that may discourage higher-risk investment, and geopolitical risks, IIF Managing Director Charles Dallara said in the release.
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