With emerging markets as an asset class hotter than ever, it might be expected that capital flows to them would also be hitting all-time highs. That would be the correct view of the aggregate situation: according to the Institute of International Finance, net private capital flows to emerging markets topped $500 billion in 2006 – the second year in succession that has happened. (In 2004, by contrast, those flows were a “mere” $350 billion.)
Latin America, however, seems to have been left out of the party somewhat. The region received net private capital flows of a healthy $71 billion in 2005 but that figure dropped sharply in 2006, to just $46 billion. In view of the fact that the public sector withdrew $20 billion from the region over the course of the year, in the form of repayments to the World Bank, IMF, and Inter-American Development Bank, it’s clear that Latin America’s healthy growth rates are not a result of a massive influx of foreign cash.
Indeed, a great deal of money appears to be flowing out of Latin America, not into it. The Brazilian government alone increased its foreign reserves – that is, purchased foreign securities, mainly Treasury bonds – to the tune of more than $31 billion in 2006, bringing the total to more than $84 billion.