Cash crunch hits poor nations

The poverty trap has become harder to escape

The developing world's ability to borrow money via the international capital markets has deteriorated sharply in the wake of the 11 September terror attacks, according to the Bank for International Settlements (BIS).

International investors and banks have been shunning lending projects to poor countries, said the BIS, a bank and a forum to the world's central banks.

"The immediate effect of the tragic events was to... induce investors to shift into less risky assets," the BIS said.

"Debt issuance by emerging market borrowers declined... while bank lending to these debtors also showed signs of a slowdown."

So while lending to companies and to rich countries picked up soon after the attacks, "this attitude of persistent medium-term optimism did not extent to emerging economies," the BIS said.

Economic crisis

Even ahead of the attacks, many developing economies had already been finding it hard to raise finance, due to the weakness of the global economy.

This double whammy meant their poverty was made much harder to deal with in the wake of 11 September.

The weak world economy means there is little hope that a rise in exports will bring in fresh cash to replace the fall-back of capital raised in the financial markets.

This collapse of export prospects is expected to hit companies' future earnings, and this has caused a slump in many firms' share prices.

Consequently, many stock market indexes in the developing world have failed to bounce back since the attacks, the BIS said.

This is in contrast to the industrialised world where share prices have recovered much of their losses since September.