Emerging Nations Capture Global Cash
Meeting in Washington of top financiers offers window on world currency flows.
BOSTON — Like the patterns in a kaleidoscope, the flow of money around the globe keeps changing.
Those shifts in where billions in dollars, yen, and francs go, affect everything from retirement income to clothing prices to job security in nations around the world.
The top economists and financial leaders, gathering this week in Washington for the spring meetings of the International Monetary Fund (IMF), the World Bank, and the Institute of International Finance (IIF), will consider the implications of the latest financial fluctuations:
* The allure of emerging markets. Mutual funds, 1,500 of them owned by Americans and citizens of other industrial nations, have invested $135 billion in so-called "risky" markets in "emerging nations." That's up from $14 billion in 1990.
Such investment is drawn to, and helps fuel the rapid growth of developing countries. They now account for about 45 percent of global economic output and approximately a third of global foreign direct investment in plant and equipment and of money flows into stocks and bonds.
Workers in developed nations often focus on the loss of low-skill jobs abroad. But economists note that developing nations also buy 25 percent of the exports of industrial countries. Those purchases of American or European products, for example, mean better paying jobs in Iowa or France.
The jobs these exports create usually pay 15 to 20 percent above the average, says C. Fred Bergsten, director of the Institute for International Economics in Washington.
* A troubled yen. Japan, the big economic "threat" of the 1980s, is facing sharp challenges arising from a slump in output, a weak yen, and a growing trade surplus.
The weak yen will be a "fairly compelling topic," at the meeting, says Robert Hormats, vice president of Goldman Sachs International in New York. Other industrial nations will be pressing Japan for reforms in finance, distribution, and transportation that could help other nations compete in the island nation, he says.
Mr. Bergsten argues the yen should be brought down to 100 or 110 to the US dollar, from 125 at present.
Otherwise, he says, the Japanese trade surplus with the US will expand rapidly, costing jobs. "The real Joe gets hit by this pretty badly," he says.
* Russians divest. More money flew out of Russia last year than went in.
International financing institutions are investing heavily in Moscow's shift from communism to capitalism. In 1996, Russia got $6 billion in loans from such institutions as the IMF and $3.3 billion in foreign private investment. This week, the World Bank announced a $6 billion lending program aimed at remedying deep-rooted economic problems. Earlier this month, the IMF promised to re-start a stalled $10 billion loan.
But with the uncertainty of last summer's presidential election and President Boris Yeltsen's health problems, Russians took $40 billion out of their nation last year, tucking it away in Switzerland, London, or other places they thought safer.
Russia, only several years ago considered the "enemy" of the Western world, is sending First Deputy Prime Minister Anatoly Chubais to a meeting of the Group of Seven finance ministers in Washington Saturday. He will promise further internal financial and economic reforms, hoping to attract more foreign money.
When the heads-of-state of these powerful seven industrial nations (the United States, Japan, Germany, Britain, France, Italy, and Canada) meet in July in Denver, it will be called the Summit of the Eight. Though Russia is not a full member yet, Mr. Yeltsin will participate in more discussions than in the past.
* Euro money. Several nations of the European Union plan to create a common currency in 1999, the Euro, that for the first time in post World War II could challenge the US dollar as the world's dominant currency.
While it's a couple of years away, if the Euro became widely accepted as a currency, it could force some US companies doing business in Europe to write contracts in the Euro, instead of dollars, and that may also mean more currency risk.
THIS gathering of key financial leaders occurs at a time of relative economic calm.
The IMF, in its biannual economic outlook, speaks of "favorable global economic conditions." But it also cautions of the risk of "a more significant correction" in prices in the US and other stock markets if corporate earnings tumble or inflation reemerges.
As part of this week's business, the executive directors of the two multilateral organizations were expected to give the green light to nearly $1 billion in debt relief to poor, heavily indebted nations. On top of the list are Uganda, Bolivia, and Burkina Faso. Next could be Ivory Coast.
This will recognize that the claims on these nations by industrial countries and by the IMF and World Bank are "not really recoverable," says William Cline, an economist with the IIF, an association of 158 huge private financial institutions in 45 nations.
Though the amount is small in the scale of world finance, the debt relief is crucial to these nations, says Mr. Cline.