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East: IIF Projects Growth For Emerging Economies

  • Robert Lyle

The global organization of commercial banks, investment funds, and insurance companies -- the Institute of International Finance -- predicts that emerging market countries should see their economic growth improve even more this year. Correspondent Robert Lyle reports.

Washington, 5 April 2000 (RFE/RL) -- The Institute of International Finance (IIF) says that increased attention to needed financial system reforms in many leading emerging market countries is helping to give them even better economic growth than expected, reaching as high as 5 percent by the end of this year.

In addition, the IIF forecasts that private capital flows -- which already account for 85 percent of the money going into most of these countries -- will rise by more than one-third this year to around $200 billion worldwide.

These are improved projections over what the institute forecast as recently as January when it said private capital flows into what it calls "emerging Europe" would top $32.5 billion this year. Bulgaria, the Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, and Turkey are counted as emerging Europe by the IIF.

The IIF is an international organization of commercial banks, investment funds and insurance companies.

While it did not break down the figures for each country, the IIF said in January that Russia was likely to have greatly reduced net flows of private capital this year -- perhaps even turning negative -- because some old creditors are starting to be repaid and due to continued capital flight.

IIF Managing-Director Charles Dallara told our correspondent this week that so much in Russia depends on the new government's willingness to undertake broad-based reforms:

"They have any number of times over the 90s achieved periods of reasonably solid macroeconomic management and stability and again recently, we've seen revenues growing, the fiscal deficit coming down and encouraging signs. However, capital flight remains around a monthly level of around two and a half billion dollars, according to our estimates, and the key structural reforms that would create genuine openness, transparency, and competition in key sectors of this economy, have not yet been made. And we will need to see that."

Dallara spoke as the IIF was encouraging the finance ministers and central bank governors, including Russia's, who will be attending the spring meetings of the International Monetary Fund (IMF) and World Bank later this month in Washington, to expand the two institutions' involvement of the private sector in its programs and crisis management.

There has been a fundamental change in the structure of finance for most emerging markets, said the institute, and the fund and bank must take greater account of things like a country's investor relations, the transparency of its economy, and the effects of private capital flows.