NCPA - National Center for Policy Analysis

Economic Slowdown Affects Developing Countries

April 18, 2001

With the U.S. balanced on the edge of recession, Europe slowing and Japan in a perpetual slump, developing countries are confronting a drop in foreign investment and anemic export markets. That is a concern being voiced by Charles Dallara, managing director of the Institute of International Finance, which conducts research on behalf of more than 300 financial institutions.

  • He expects net private capital flows from wealthy to developing nations to drop to less than $150 billion this year -- from an annual average of $210 billion over the past five years.
  • In addition, the slowdown in industrialized nations is cramping exports from the developing world.
  • He estimates that exports from Asian and Pacific countries will grow just 5 percent this year -- after jumping 23 percent in 2000.
  • Latin America's sales abroad will increase only 7 percent this year -- down from 22 percent growth last year.

During the 1990s financial crisis, direct investment from developed to emerging-market countries tended to hold steady because investors were generally confident in the long-term prospects of countries such as Brazil, South Korea and Mexico.

But today, says Dallara, global investors and multinational corporations are increasingly aware of the political fragility that exists in many emerging-market economies.

Source: Michael M. Phillips, "Global Marketplace Faces Challenges as Economies Slow," Wall Street Journal, April 18, 2001.

 

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