IFR IMF/World Bank 2011

IFR IMF Special Report 2011
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The financial storm clouds are gathering. A credit downgrade for the US and the continuing uncertainty caused by the eurozone sovereign debt crisis have sent investors scrambling for cover. Emerging markets were remarkably robust following the credit crunch, but it is uncertain whether the decoupling can be sustained as developed markets now slow to a near halt.

As World Bank president Bob Zoellick has put it, the global economy gives every sign of entering a new danger zone and many are looking to institutions like the IMF and World Bank and asking whether they are equipped to cope with what the future might bring. In this report IFR considers if the fund is structurally prepared to play a leading role in another crisis.

Amid the turmoil, emerging market debt continues to draw attention, offering high yields, relative stability and – above all – strong growth potential. But the emerging markets themselves remain diverse and many are going through a period of fundamental change. Nowhere has this been more tumultuous than in the Arab world, where revolutions to bring about democracy have been destabilising for markets in the short term, while at the same time promising much in terms of future growth.

Meanwhile, China has become one of the main actors on the global economic stage, and has overtaken Japan to be the second-largest national economy in the world. Together with the other large and rapidly growing emerging market economies it is set to account for a substantially larger share of global economic activity in the coming years.

In contrast, development in many emerging markets remains frustratingly slow. National budgets continue to be under strain in many countries as governments attempt to reconcile increasing social expectations with fragile growth – despite the boost that many have received from the commodity boom.

The growth of capital markets will continue to play a crucial role, and there are hopeful signs that the pace of development may be speeding up. To take one example, the number of countries in Sub-Saharan Africa issuing eurobonds is set double in the next 12 months.

In this special report IFR focuses on a selection of markets that are proving to be of special interest to corporate and institutional funds.

They range from Malaysia’s rapidly developing sukuk sector, where foreign borrowers are discovering a fresh route to Middle Eastern funds, to West Africa and its wealth of infrastructure opportunities. We also look at the mixed picture emerging from Russia where a string of record loans for Russia’s banking sector make it an emerging market favourite, at the same time that a catastrophic 2011 has seen equity investors shun anything with a Russian flavour. And, in the Americas, we report on how appealing corporate valuations are helping Chile and Colombia to gain ground on Brazil.

Among the poorer emerging markets, we also offer an insight into the IFC’s attempts to tackle new frontiers in countries such as Sierra Leone and Liberia as it seeks to help stabilise the region’s capital base and encourage further outside investment.

In a recent visit to Beijing, Zoellick said China and the World Bank were in early-stage talks to facilitate a move of large numbers of low-skilled jobs from China to Africa.

Increasing economic uncertainty has forced lenders to reassess their strategies and the coming months are likely to bring yet more changes to the dynamics of global finance. But no one can be in any doubt that amid the upheaval the role of emerging markets will be ever greater.