Crisis-hit economies 'have bounced back and may see boom'

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The Independent Online

Emerging economies have recovered from the global crisis and could enjoy a new boom in foreign investment this decade, according to a report published by the World Bank yesterday.

Uri Dadush, in charge of the Bank's annual Global Development Finance report, said: "The next decade may well see another boom in capital flows to emerging markets, accompanied again by high volatility and the potential for crises."

The report predicts increases in growth in the developing economies this year and next. They are expected to record GDP growth of 4.6 per cent this year and 4.8 per cent next, up from just 3.3 per cent in 1999. "Developing countries are finally starting to recover from the worst impact of the global crisis, but this recovery is uneven," said Mr Dadush.

The absence of any headway on poverty reduction in some countries was also a theme of a separate UN report yesterday. The Poverty Report 2000, published by the United Nations Development Programme, said the blame lay mainly with corrupt and unaccountable governments. Its hard-hitting call for better government in many developing countries marks a departure for the UN body, which has been more inclined in the past to blame globalisation and the financial markets.

The World Bank report predicts growth will be much faster in countries more open to trade and direct investment, including much of East Asia, Eastern Europe and Brazil and Mexico. It also forecasts rapid growth in China and India, jointly home to 55 per cent of the world's poor, thanks to their progress on economic reform.

Even so, it expects growth to remain subdued relative to the rates experienced before the global financial crisis of 1997-98. It will take time to overcome economic frailties such as weak banking systems exposed by those events. The World Bank predicts a steady recovery in capital flows to emerging economies, from $161bn last year to up to $230bn in 2001. This is below the peaks of the mid-1990s, but a greater proportion is expected to consist of long-term direct investment rather than the "hot money" bank loans and equity investment whose flight triggered the crisis.

The World Bank recommends safeguards against future crises, including the possible introduction of certain types of capital controls.