Record Capital Flows To Emerging Markets In 2005

Investors pumped a record $358 billion into emerging markets in 2005, encouraged by favorable economic conditions and a search for high returns, a report showed Jan. 19. The Institute of International Finance, comprised of global banks and other financial institutions, said the net private capital flows to emerging markets represented a gain of $40 billion over 2004 and crushed the previous record of $324 billion in 1996. The IIF predicted a modest decrease in 2006 flows to developing nations to about $322 billion.

"The strong flows of international capital into emerging markets reflect a number of important trends," said Josef Ackermann, chairman of the IIF's board. "In addition to continuing significant global economic growth, national authorities in numerous emerging market economies have improved economic policy management in recent years, which has led to greater growth, lower inflation and reductions in the ratio of public debt to GDP."

The report showed the emerging economies of Europe attracted the most capital, $143.8 billion, up from $113.7 billion in 2004. In the European region, "prospective EU accession countries like Romania and Turkey draw attention from investors," according to the report.

Asian emerging economies were not far behind, drawing in $142 billion, but that was down from $165.5 billion in the prior year. In Asia, the report said, "China will remain the magnet for the region, attracting nearly 70% of total net private capital flows."

Private capital flows to Africa and the Middle East were a smaller portion of the overall investment dollars but more than doubled from 2004 to $28.4 billion dollars.

Latin America capital flows increased to $44.1 billion from 29 billion, around 12% of the overall total.

Copyright Agence France-Presse, 2006

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