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. Last Updated: 07/27/2016

Funds for New Markets to Rise

WASHINGTON -- Foreign investors and commercial lenders look set to pour a record $225 billion or so into emerging market economies this year, the head of the Institute of International Finance said.

That would be up sharply from the $208 billion in private capital flows to those countries last year and represents a vote of confidence in their prospects.

"The private flows have been steadily rising," Charles Dallara, managing director of the institute, which represents some 220 banks and international financiers, said Thursday.

In contrast, foreign governments and multilateral institutions such as the World Bank are expected to put only some $15 billion in new money this year into emerging economies in Asia, Latin America, Europe, Africa and the Middle East.

"The multilaterals have been marginalized as net providers of finance," Dallara said, although they still have "powerful" roles in the world economy.

About half of the private capital flows this year are expected to be in the form of equity investment, most of it direct investment in factories and other facilities, he told a group of reporters.

Dallara said both the World Bank and the International Monetary Fund needed to work together to ensure that the flow of private sector money into emerging markets is maintained. He spoke out in favor of the increased use of loan and other guarantees by the World Bank to help in that regard.

World Bank management is discussing using some of the organization's lending profits to set up a special trust fund to finance the increased use of guarantees.

But Dallara said the proposal had run into opposition from some member nations. "Shareholders in these multilaterals try to behave from a global perspective, but they are often driven by their own parochial interests," he said.

U.S. Assistant Treasury Secretary David Lipton told reporters separately that Washington backed the general thrust of the World Bank proposal but wanted to see the specifics. "We are encouraging greater World Bank use of guarantees, insurance and other mechanisms that can catalyze greater private sector investment," Lipton said.

Turning to the IMF, Dallara said he was encouraged by the organization's increased openness to contacts with commercial banks and investors in emerging economies.

That benefits the IMF by giving it an insight into what is driving private capital flows into such countries -- and what could trigger their reversal. At the same time, it helps educate investors about emerging economies and risks therein.

"It's not that there's any secret, confidential information that either side should be pointing to the other," Dallara said.

He suggested that his institute would be one logical medium through which such a dialogue could be conducted.