TODAY, and for the forseeable future, the world's balance sheets look more encouraging.
The outlook is far better than the debt-distressed 1980s, when many developing countries were bogged down by poor economic management and borrowed abroad far beyond their ability to repay, according to leading financial institutions, including the World Bank and the Institute of International Finance (IIF), a group made up of commercial banks, investment houses, and export credit agencies.
``We're seeing the revival of international finance,'' says Antoine Jeancourt-Galignani, chairman of the IIF and chief executive officer of the Paris-based Banque Indosuez. Since 1990, he says, private lenders and investors have channeled more than $300 billion in fresh funds to emerging economies - largely in Latin America and Asia.
The smart money is drawn to these regions where economic growth ``has clearly accelerated,'' Mr. Jeancourt-Galignani says. ``This contrasts sharply with slow growth in the US and recession in continental Europe.''
Low investment returns in the leading industrialized world market and saturated real estate and other markets have pushed capital flows to fast-growing, relatively unknown arenas and to nations where bankers have been badly burned in the past.
Even Citibank Vice Chairman William Rhodes, whose bank, among many others, had a large portfolio of nonperforming loans to Latin America during the past decade, is bullish on the former debtors. The region's strides in liberalizing and revitalizing local economies - from tax reform to budget discipline - ``have enhanced foreign investment and spurred a major interest in international lending,'' he says.
Michael Bruno, chief economist of the World Bank, also credits ``economic policy reforms in developing countries, especially fiscal consolidation, greater openness to trade, privatization, and more market-oriented policies'' with the ``striking growth in private source capital flows.''
Global financiers expect the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), finally completed this week after seven years of negotiations, to be a big boost to world commerce.
Noting economists' projections that liberalization measures under GATT will add considerably to the world economy by the time they are fully implemented, financiers say that the need for trade finance will be greater than ever.
With all of the new opportunities, there are considerable risks, cautions Charles Dallara, IIF's managing director and spokesman for a group of 175 international banks. IIF released a study of selected countries - China, India, Indonesia, Argentina, Mexico, Hungary, Poland, Russia, South Africa, and Turkey among them - where investor interest is peaking.
China, for example, receives the most foreign direct investment and new commercial bank credits of the developing countries. As the world's most populous country, China attracted $17.3 billion in foreign investment during the first 10 months of this year, an $11 billion increase over the same period last year.
But the investment-led boom has overheated the economy: Inflation is perilously high, export growth has slackened off, and imports are rapidly increasing. The IIF warns that a ``delay in correcting macroeconomic imbalances raises the risk of a harsh adjustment reminiscent of the boom-bust cycles of the 1980s.''
``These [developing country] markets remain rather thin, and their reform processes are far from completed,'' Mr. Dallara says. The IIF will focus its efforts on monitoring country creditworthiness, ``especially where new forms of financial flows are captured only inadequately by existing reporting systems.''
Mr. Rhodes underscores the urgent need for accountability. ``Citibank is spending more and more time looking for opportunities in the developing world,'' he says. ``We're very positive and upbeat.''
But banks are also much more savvy, he stresses. ``One thing we learned about the debt crisis is that we want to know where the capital flows are going.''
Africa remains one region still starved for those flows. While the IIF notes great progress in countries such as Tanzania and Ghana, where reforms have stimulated investor interest, much of the continent is still bereft of foreign investment.
Mr. Bruno of the World Bank notes that at least two dozen low-income nations, mostly in sub-Saharan Africa, are still staggering under the weight of debts. Governments, international financial institutions such as the World Bank, the International Monetary Fund, and regional development banks continue to offer these ``poorest of the poor'' relief from repayment and new, highly concessionary credits.