Dramatic decline in net private capital flows to emerging markets will be seen in 2009, according to the Institute of International Finance (IIF).
In a report released Thursday at the Spring Membership Meeting, the IIF predicted that the volume of private capital flows to emerging markets this year will likely be 141 billion U.S. dollars, which is less than one-half of the 2008 total of 392 billion dollars and far below the record of 888 billion dollars seen in 2007.
Regional divergences are also highlighted in the IIF report. Most significantly, projections of flows to "Emerging Asia" and Latin America have been revised upwards while revising down the estimates of net flows to "Emerging Europe."
In Asia, the net private capital flows to emerging markets is projected 88 billion dollars this year as compared to 59 billion in 2008 and record 296 billion in 2007. Aggregate net repayment of private sector capital by "Emerging Europe," of 33 billion dollars, is now foreseen in 2009, after net inflows of 214 billion dollars in 2008.
Nevertheless, a modest revival of flows is now starting to become evident and the IIF projects that the 2010 volume of private capital flows to emerging markets will reach 373 billion dollars.
The IIF said that following a period of extreme weakness between October 2008 and March 2009, flows to emerging markets appear to have improved somewhat over the last two months, albeit to levels far below the early months of 2008.
William Rhodes, First Vice Chairman of the IIF's Board of Directors, Chairman and President, Citibank and Senior Vice Chairman, Citi, stressed that moderate recovery in capital flows in emerging markets partly reflects a rise in investor confidence both in response to measures taken by governments in emerging markets, including China, to stimulate their economies and to the international support that emerging markets are now starting to receive.
In the report, IIF projected that net private capital inflows to China, which moderated from a peak of 153 billion dollars in 2007 to 88 billion dollars in 2008, are set to stabilize at around 60 billion dollars this year and next year.
Rhodes also noted, "The International Monetary Fund must deploy its expanded resources with skill to assist its member countries to achieve economic recovery. And, it is also important that every effort be made to increase the resources available to the World Bank Group, including the International Finance Corporation, and to the regional development banks, including the Asian Development Bank. These institutions have major roles to play at this time."