Institute for International Finance proposes principles to promote stability in emerging markets

By Reshmi Basu

New York, March 31 - A group of more than 300 international banks has created a list of principles to promote the stability of private capital flows during crisis conditions.

Their proposals, the result of two years of "intense dialog" by the Institute for International Finance, are included in a new report titled "Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets."

Principles drawn up by the institute focus on transparency and timely flow of information, close debtor-creditor dialogue and cooperation to avoid restructuring, good faith actions, and fair treatment.

While significant amounts of private capital have flowed into emerging market economies over the last 15 years, net official flows have been more restricted in every year since 1990, said the Institute for International Finance.

Direct investment from multinational corporations has accounted for more than one half of private flows, the group reported

The institutional investor pool has broadened as more and more pension funds, mutual funds, insurance companies and hedge funds have joined in, said the group.

However, during the last decade, flows have been frequently disrupted "by periods of retrenchment by international investors and creditors that have generally reflected inconsistent economic performance," remarked the IIF.

The IIF said that inadequate flows in information between debtors to creditors, insufficient dialogue between lenders and borrowers and failures by policy makers to create measures to restore investor confidence only aggravated the crisis.

"With a large part of emerging market finance taking the form of liquid marketable instruments, policy mistakes can lead to widening of spreads, declines in local equity markets and a reversal of capital flows," commented the IIF.

The IIF has created four principles to help bring stability in the event of a crisis.

In order to improve transparency, it said improvements must be made regarding the disclosure of relevant information so that creditors can make informed decisions.

The second principle is that debtors and creditors should engage in regular dialog regarding information and data on economic policies and performance.

The third principle asks that when restructuring becomes unavoidable, debtors and creditors should engage in a restructuring process that is voluntary and based on good faith.

The fourth principle calls for fair treatment, which includes seeking rescheduling from all official bilateral creditors just not the private sector.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.