Monday 2 March 2009

Emerging market finance: a gap to fill

Two years ago, nearly a trillion dollars flowed into emerging markets as investors in rich countries toured the globe in the hunt for yield. Now there is a melancholy long, withdrawing roar as private capital flees to safer havens.

In the past, when the money stopped flowing in, it precipitated financial meltdowns – across Asia and in Russia in the 1990s and in Latin America a decade earlier. This time, it is increasingly clear, the official institutions set up to cushion the impact are too small for the task.

Net capital flows to emerging markets will drop to just $165bn (£115bn, €130bn) this year, down from $929bn as recently as 2007, according to estimates by the Institute of International Finance, which represents the world’s leading financial companies. Net lending from commercial banks, the IIF says, is likely to go into reverse.

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