Net private capital flows to developing countries reached a record high of $491 billion in 2005, driven by privatizations, mergers and acquisitions, external debt refinancing, as well as strong investor interest in local-currency bond markets in Asia and Latin America, says the World Bank’s annual 2006 Global Development Finance report. The surging flows, including record bank lending and bond issuance, among others, coincided with 6.4-percent economic growth in the developing world last year, more than double the 2.8-percent growth in developed countries.
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“These increased capital flows reflected greater confidence in the economic prospects of several developing ountries. Countries are benefiting from improved global market conditions and investment climates, while closer global financial integration is posing difficult challenges to policymakers in both developed and developing countries to sustain economic growth and financial stability.”
— François Bourguignon, Senior Vice President and Chief Economist, The World Bank
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The sharp rise in private flows to developing countries came despite uncertainties caused by high oil prices, rising global interest rates and growing global payments imbalances. Private debt flows to developing countries rose to an estimated $192 billion, up from $85 billion in 2003, driven by abundant global liquidity, steady improvement in developing-country credit quality, lower yields in rich countries, and expansion of investor interest in emerging market assets. Many developing countries have received credit-rating upgrades to accompany record-low spreads on their bonds, enabling them to raise a record $131 billion in bond issues in 2005, up from $102 billion in 2004.
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