WASHINGTON, January 29: The Asian financial crisis led to a major decline in net private capital flows to leading emerging markets in 1997 and may prompt a moderate further decline this year, marking the first major retrenchment of capital flows by international investors to emerging markets this decade, says the Institute of International Finance.IIF, the global association of financial institutions with over 280 members, estimated that total net private capital flows to the 29 leading emerging market economies in 1997 totalled $ 199.6 down from the record total of $295.2 billion in 1996. The IIF projected that the 1998 total will be around $171.5 billion.
In its new report, "Capital flows to emerging markets", the institute stressed that net private flows into the five economies most affected by the Asian crisis (Indonesia, Phillippines, Malaysia, South Korea and Thailand) fell from $93 billion in 1996 to an outflow of $12 billion in 1997. However, flows to the other leading emerging market economies,including others in Asia, rose in 1997 to $212 billion from $202 billion.
Dr Georges Blum, chairman of the IIF, noted at a press conference in Zurich, Switzerland today: "the crisis in Asia has certainly had a major impact on flows to the most seriously affected countries. However, in 1997, it is remarkable that in these circumstances flows to all other major emerging markets actually increased, demonstrating that contagion in flows has been limited."
Blum added: "particularly noteworthy on the positive side are the developments that we are seeing with regard to equity flows. These reached a record volume in 1997, despite the Asian turmoil, and a similar volume is likely in 1998."
Equity flows accounted for around 65 percent of all net private flows last year, with the bulk of this attributable to foreign direct investment, "which indicates a continuing strong interest in these countries by international businesses," said Blum.
The IIF estimated that, largely because of the Asian crisis, officialcapital flows rose to close to $30 billion in 1997, from just three billion dollars in 1996 and that a further $30 billion of such flows are likely in 1998. The institute noted that commitments for official international support totalling over $100 billion have been mobilised for Indonesia, South Korea and Thailand.
On the private creditor side, the IIF estimated a decline in net flows of around $100 billion in 1997 to a total of $88 billion and if projected a further decline to a total of roughly $40 billion for 1998. The fall seen last year was due to reductions in net new flows from banks to emerging market economies, while the 1998 projections involve an expectation of a significant decline in new bond issues.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
