Brasília – The International Monetary Fund (IMF) warned of the risk of investment flight in emerging countries in case global economic conditions worsen. The conclusion is part of the Global Financial Stability Report, issued in Washington this Tuesday (13th). The IMF warned that investors who took advantage of the 2008 world economic crisis to invest in emerging nations may withdraw their funds, in a trend of reversal, in the case of a new worldwide economic shock.
“However, with as many first-time investors seizing the advantages of these [emerging] countries’ relatively better economic performance, there is a risk of reversal in case the fundamentals change,” the document says. “In the case of larger shocks, the impact of this reversal may be as large as the outflow seen during the [2008] financial crisis.”
According to the FMI, the scope of the recent withdrawal of investment in asset funds and bonds at emerging markets after the downgrading of the United States public debt and the worsening of the European Union crisis corroborates the report’s conclusions. After the world crisis, many emerging nations, such as Brazil, which had been less affected by the turmoil than more advanced economies, recovered faster. This scenario attracted a strong flow of foreign investment into these countries.
Although investors have been attracted by high interest rates in emerging countries, the IMF judges that this factor is considered only by short-term investors. In the case of institutional and long-term investors, the decision of where to invest the funds is based mainly in good growth forecasts and lower risk in target countries. “The difference in interest rates among the countries plays a secondary role,” the IMF claims.
*Translated by Gabriel Pomerancblum
