Investment Flows Return to Developing Countries Though Burned by Bad Debt in the Past, International Bankers and Other Investors Renew Their Interest in Latin America and Asia

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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. …