Private capital flows to the 29 most prominent emerging markets expanded significantly in 2004, rising by almost one-third to an estimated $279bn, more than double the figure for 2002.
The data, compiled by the Washington-based Institute of International Finance (IIF), showed a surge of flows to China and Russia in the final months of 2004, largely reflecting the dollar’s fall. The IIF forecasts that, despite slower growth in the world economy and in emerging market economies, net flows will remain robust and will maintain almost the same level in 2005 as they did in 2004.
The IIF projections reflect the view that the US economy will grow 3.4% this year, down from 4.4% in 2003, and that emerging market real GDP will grow by an average 5.4% in 2005, after an estimated 6.3% last year. IIF managing director Charles Dallara noted, however, several downside risks, which include a sharper-than-anticipated rise in US interest rates, disruptive exchange rate movements, a rise in negative investment sentiment stemming from concerns over global imbalances, as well as geopolitical risks.
In 2004, net private equity investment, both direct and portfolio, rose sharply to $165bn and a further advance to $177bn is projected this year. Commercial bank net lending also moved up sharply, almost doubling to $49bn with $42bn projected this year. Emerging Europe is set to account for more than last year’s total of $29bn in 2005 but China is expected to decline to less than $12bn ($33bn in 2004).
Repayments to official institutions such as the International Monetary Fund (IMF) are set to rise rapidly this year, almost doubling to $36bn. The three largest recipients of IMF funding, Argentina, Brazil and Turkey, are expected to make total repayments of $13bn this year, double those of 2004.
The net flows for 2004 of $279bn are the highest since 1997. IIF vice-chairman William Rhodes says this reflects growing investor confidence in the improved performance of important emerging market economies.
