According to Universidad Nacional, capital flows are as follows:
Net private capital flows to emerging markets reached a record of over $550 billion last year, up from $520 billion in 2002 and they are on target in 2007 to match the 2006 volume, stated the Institute of International Finance (IIF) today in a report released at its Spring Membership Meeting in Athens.
The IIF is the global association of financial institutions with more than 360 member institutions across the world. Dr Josef Ackermann, Chairman of the IIF's Board of Directors, Chairman of the Management Board and of the Group Executive Committee of Deutsche Bank AG, said, "The current level of flows reflects a generally positive economic environment. We continue to see solid growth and low inflation in the leading industrial economies. There are also improvements in economic fundamentals in many emerging markets. In addition, as emerging-market assets have performed well, there has been a progressive widening of the investor base, enhancing the resilience of emerging markets as a result."
Dr Ackermann stated at a press conference in Athens at the Spring Membership Meeting of the IIF that there are vulnerabilities in the economic outlook, which make it particularly important for borrowers and investors alike to pursue prudent risk management. He noted that current concerns include geopolitical issues, uncertainties in a range of major national economies, including the United States and China, as well as the potential of the global imbalances igniting a disorderly adjustment. He said, "Next week's G8 Summit should address the issue of imbalances and encourage the process of the multilateral negotiations under the auspices of the IMF. To provide effective political support to this process, however, requires that the forum of G7 Finance Ministers be expanded to a G11 to include countries that now are key players on the global economic stage - China, India, Russia and Brazil."
IIF Senior Vice Chairman William Rhodes, Chairman, President and CEO of Citibank N.A. and Senior Vice Chairman of Citigroup Inc., stated on current capital flow trends that, "Due to high levels of liquidity and the chasing of yield, we are seeing a lack of differentiation in the pricing of various financial assets in global markets today. The time has assuredly come when investors need to differentiate much more carefully between various types of risks, and to price risks according to fundamentals."
Mr Rhodes added, "At the same time, given the market vulnerabilities that now exist, the governments of a rising number of emerging market economies need to maintain sound economic policies and pursue needed structural reforms - in some cases these have been postponed for much too long."
The IIF's capital flows forecasts are predicated on expectations that there will be only a modest slowing of economic growth this year relative to 2006. U.S. growth is seen at 2.4 per cent after 3.3 per cent in 2006, while Eurozone growth is forecast at 2.5 per cent after 2.8 per cent, and growth in Japan this year is projected to be unchanged from last year's 2.2 per cent. Growth in emerging market countries is slated to remain robust at 6.8 per cent, down slightly from 7.1 per cent in 2006. Substantial variations are evident among the regions, with the IIF forecasting more than 8 per cent growth for the fourth year in a row in emerging Asia, a slight slowing in emerging Europe to 6.2 per cent from 6.4 per cent, a decline to 4.7 per cent from 5.2 per cent in Latin America, and growth in the Africa/Middle East region is expected to taper off in 2007 to 5.0 per cent from 5.2 per cent.
Key features of the new IIF report include:
Dr Ackermann stated at the press conference that, "A paramount issue for the IIF's members with regard to emerging markets is strengthening the architecture that can prevent crises and manage them well should they arise. With today's IIF report noting that net official capital flows to emerging markets are expected to amount to just $1.3 billion this year, compared to $550 billion from the private sector, it is obvious that the private sector has a major role to play on the crisis prevention stage."
He said that leaders of official finance and the private sector have been moving forward to implement the "Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets." Dr Ackermann stated, "This framework for pragmatic action based upon voluntary market practices was launched in late 2004. Support for the implementation of the Principles is growing. This has been helped by the engagement of a number of major public officials as Trustees, and permit me to just single out ECB President Jean-Claude Trichet, who inspired this initiative originally and who continues to provide leadership. Today, we are seeing more governments recognizing the need to improve their investor relations and data transparency, and more investors who realize that cooperation on preventing crises can help avoid costly restructurings."