IMF laments emerging-market gloom

The IMF is finding market conditions trickier

Risk and uncertainty in the global economy are increasingly weighing on financial markets, said the International Monetary Fund (IMF) in its latest quarterly review of emerging-market financing.

A series of recent market crises, in Turkey, Argentina and Brazil, have made the IMF more than usually gloomy about the outlook.

"Increasing confirmation of the global slowdown and heightened concerns about the potential for credit events within the emerging markets since the last quarter have increased the downside risks," said the report.

The fund said that poor sentiment would reduce bond-market financing for emerging markets, and all but eliminate in-flows from share and syndicated loan investors.

Even this bleak outlook is based on the assumption that no major crisis - along the lines of the Asian economic collapse of 1997 - will emerge in the near future, and that developed economies will not deteriorate further.

Wildfire worries

The IMF played down fears of "contagion" - the risk that panic in one emerging market could spread into other, unconnected countries.

Contagion was the main reason that the 1997 Asian crisis had such deep and lasting effects on emerging markets around the world.

This year, said the IMF, such knock-on effects have been limited. Changes in the type of investors, and in their approach to emerging-market risks, have made contagion less likely.

But the fund cautioned that "the potential for broader-based contagion remains".

"It remains an open question as to how much contagion and volatility there would be if such an event were to actually take place."

Oil threat

The IMF also pointed to declining oil prices as a threat for emerging markets.

Some developing economies - notably Russia, Mexico and Venezuela - have profited hugely from the high oil prices of the last two years.

But the likely fall in prices would make them much less attractive, the IMF said.

Other economies, net importers of oil, would benefit - but they are not as numerous among emerging economies as exporters.

The report did note, however, that Russia was likely to return to international financial markets this year, for the first time since its economic crisis of 1998.