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Emerging economies still suffer from Asia crisis-report

WASHINGTON: Investment in emerging market economies is still suffering as a result of the Asian financial crisis and the International Monetary Fund has made matters worse, according to a new report released on Thursday.

But transparency in emerging economies, such as Argentina and Mexico, has improved in the past two years, something that could help give investors warnings before a new crisis took hold, the Institute of International Finance said.

"There is still a good bit of lingering damage to the robustness of emerging markets' financials as a result of the crisis in Asia," said Charles Dallara, managing director of the IIF, who's members include hundreds of commercial banks around the world.

The Asian financial crisis started in Thailand in July 1997 before spreading through the region and beyond.

The crisis resulted in billions of dollars of capital flooding out of emerging economies, making many investors' wary of further investment and leading to calls for greater transparency and more stringent reporting of economic data.

Dallara noted that the level of investment in emerging economies, through bank loans and investment in bond offerings, remains well below the $200 billion record set in 1996 and placed some of the blame at the door of the IMF.

The group will release its latest estimates of capital flows to emerging economies later this month.

Dallara said that investment in emerging economies was being stifled, in part, "as a result of official policies over the last year which have raised important questions ... regarding IMF interference of bond contracts."

He was referring to IMF recommendations that emerging economies adopt British-style bond contracts that make it harder for individual creditors to sue a foreign borrower -- something critics claim make investors less likely to make fresh capital available.

Dallara noted that current investment levels in emerging economies were below what would be required for such countries to sustain growth rates of between 3 and 4 percent.

The group's report, which focused on assessing the data release practice of emerging economies, showed some positive signs. The report tracked how 27 countries reported economic data, from economic output to external debt, and found that many countries had made significant improvements since the crisis began in 1997.

Argentina, Hong Kong, Malaysia, the Philippines, Poland and Thailand were singled out in the report for making the best advances in transparency. The report noted that much improvement had been made in Asian countries, which suffered worse during the crisis.

Other countries, such as China, Egypt, Kuwait, Morocco, Saudi Arabia, and Tunisia, recorded poor records in meeting the desired standards in reporting economic data. But even among those which fared badly in the report, such as China, improvements were seen since the group's 1997 survey.

Dallara said that the move toward greater transparency was a positive one since more efficient reporting of economic data can help forewarn investors of a potential crisis.

Russia, a country perceived by the public as severely lacking in transparency, met the group's standards in 16 out of 25 criteria -- an average score among the countries surveyed.

The report tracked the frequency, timeliness and scope of data but not the accuracy of data from emerging economies. -Reuters