H R Khan: Certain uncertainties, uncertain certainties - India in an
interconnected world
Inaugural address by Mr H R Khan, Deputy Governor of the Reserve Bank of India, at the
40th Annual Convention of Department of Business Economics, University of Delhi South
Campus, New Delhi, 7 October 2013.
* * *
The speaker acknowledges the contributions of Ms. Dimple Bhandia and Shri Surajit Bose of the Reserve Bank of
India.
1. It is a pleasure to be here today at the 40th annual convention of the Department of
Business Economics of the University of Delhi. Let me begin by congratulating the
Department for selecting a very appropriate theme for the Convention - "Embracing
uncertainty: India in an interconnected world". The events over the last few years - beginning
from the onset of the global financial crisis, the sovereign debt crisis and, more recently, the
events triggered by the announcement of "tapering" by the Board of Governors of the Federal
Reserve Bank in the United States have all under-scored the fact that the globe, especially
the global financial system, is indeed interconnected. The last five to six years have also
brought to the fore the uncertainties associated with such interconnectedness.
Interconnectedness in the financial sector can amplify shocks with an isolated event/incident
rippling across the financial sector through a domino reaction, in some cases, blowing up into
a tsunami. But, it is hard to predict which will be the first domino to fall - and harder still to
predict how and to what extent problems in one part of the system will affect the other parts.1
2. The events over the last year years have also conclusively established that India is
increasingly interconnected with the global financial system. In the early months of the onset
of the global financial crisis in 2007, there was a growing belief that India was largely
decoupled from the rest of the world. After all, our external sector was relatively small and
our growth drivers were primarily domestic. Post collapse of Lehman brothers, much to our
bewilderment, the tsunami called the global financial crisis rolled into Indian shores. It
showed that we were clearly far more integrated with the global economy than hitherto
realised or accepted.
3. Looking at the schedule of the Convention, I see that you intend to cover an impressive
range of ground during the course of the day - flagging the challenges for policy making
posed by global shocks, deliberating upon the building blocks for a competitive and stable
economy and designing a growth compass for the Indian economy. Given the impossibility of
doing justice to the breadth of subjects intended to be covered during the convention, I will
restrict my remarks to a few broad areas. First, I will discuss the metrics of India's growing
interconnectedness with the global economy and touch upon the challenges to policy making
posed by the growing integration. I will then illustrate the challenges following announcement
of imminent tapering by the United States briefly discussing the Indian experience and policy
measures taken to counter the headwinds from the global economy. Finally, I will attempt
some comments on the way forward, domestically and internationally, to "embrace" the
uncertainties engendered by an interconnected world.
Growing globalisation
4. Post-Independence, India remained one of the most closed economies of the world. Even
as late as the 1980s, India remained very sparsely integrated with the global economy. The
story is very different now. Let me illustrate with a couple of metrics frequently used to
measure a country's global integration. One measure of a country's global integration is the
ratio of its external trade to GDP. In four decades, from 1972 to 2011, this ratio went up four
times from eight per cent to 37 per cent. Another measure, and undoubtedly a more
complete, is one which measures the two way flow of goods and services and finance to and
from the country. This metric has moved up nearly eight times in four decades - from 14 per
cent in 1972 to 109 per cent in 2011. Clearly, even as India has become more and more
integrated with the globe, the degree of its financial integration has been deeper than its
trade integration. There are other statistics which provide a similar illustration. Gross capital
flows as a percentage of GDP stands at around 60 per cent for the country though net capital
flows are significantly lower - at about four per cent of GDP. In recent years, the country's
current account deficit (CAD) has also grown to reach a high of 6.5 per cent of GDP in the
third quarter of 2012-13, though it has since come down. The net international investment
position (IIP) of the country has also been deteriorating in recent years - international
liabilities exceed international assets by about US$ 309.4 billion in March 2013 as against
US$ 250 billion in March 2012, though some improvement has been observed with net
liabilities at US$ 296.9 billion in June 2013.
5. This increasing integration of the global economy is, in fact, far from a phenomenon
peculiar to India. In fact, in the years preceding the global financial crisis, global economic
integration grew and grew sharply. World trade, as a percentage of global GDP, rose from a
little over 20 per cent of GDP to well over 30 per cent in 2007. Cross border capital flows, as
a percentage of global GDP, also rose from about five per cent in the mid-1990s to about
20 per cent in 2007. The ratio fell sharply as the crisis emerged but global capital flows have
recovered since then. As a result of financial globalization, international financial openness
(measured by the sum of countries' external assets and liabilities as a share of GDP) more
than doubled from 150 per cent of world GDP in mid 1990s to 350 per cent in 2007.2
Greater
interconnectedness of the global economy was also reflected in, and, in fact, reinforced by
the strong increase in international banking activities and the associated rising share of
cross-border ownership of financial institutions. According to the International Banking
Statistics of the BIS, the value of external assets and liabilities of banks as a share of world
GDP doubled, from about 30 per cent in 1990 to about 60 per cent in 2007 with most of this
increase taking place in the 2000s.
6. Even as globalisation intensified in the early part of this century, the deepening was
characterised by some interesting trends and features:
i. First, while advanced countries dominated international cross border flows,
emerging markets also joined the fray with their share in world capital flows
increasing from seven per cent to 17 per cent between 2000 and 2007;
ii. Second, while flows from advanced economies to emerging markets were largely
driven by increased investment opportunities in many emerging market economies
and by a substantial reduction in home bias in advanced economies, rising outflows
from emerging and developing economies were mainly driven by reserve
accumulation;
iii. Third, the growing globalisation was accompanied by widening global imbalances.
The creditor positions of Germany, Japan, China and major oil producers
strengthened while the United States, Spain, France, Italy and the United Kingdom
became more indebted. The absolute sum of surpluses plus deficits was around two
per cent of world GDP in 1980, more than six per cent of world GDP at their peak in
2006, and over four per cent of world GDP currently. Since current account
imbalances are matched by equal and opposite capital account imbalances, this
means that there is a very large net capital flow - net flows of assets across
borders;3
iv. Fourth, as discussed earlier, financial integration deepened to a significantly greater
extent than trade integration resulting in financial flows completely swamping trade
flows. The sum of financial assets and liabilities roughly equalled the sum of exports
and imports in 1970. By the onset of the global financial crisis, financial assets and
liabilities were several multiples of the sum of exports and imports clearly pointing to
the movement of cross border capital un-related to trade. This means that the net
capital flows are supported by much larger gross flows resulting in larger net
international position of foreign assets/ liabilities;
v. Fifth, for most countries around the world, rightly, the focus has shifted from net
capital flows to gross capital flows. Gross capital flows tend to be several multiples
of net capital flows. While they give rise to similar risks as those of net capital flows,
viz., the risks of sudden ebbs and reversals, the risks are obviously greater in
magnitude. Thus, movements in exchange rates and asset prices remain
susceptible to gross capital flows; and
vi. Sixth, even as globalisation deepened, economic policies remained largely national.
This inevitably leads to spillovers and sub-optimal responses to what is essentially a
global problem.
7. For emerging markets, such as, India, these trends have significant impact for the conduct
of financial sector policy. External spillovers from monetary and exchange rate policies of
major systemically important countries have been significant. For domestic conduct of
policies such spillovers are taken as exogenous, and have to be managed through domestic
policy response. This results in an inevitable loss in degrees of freedom.
8. The pattern of capital flows as they emerged, especially in the pre-crisis years is also
critical. Several views have been expressed that emerging markets have imported risky
capital while exporting safe capital. Let me use the words of Joseph Stiglitz to illustrate this
point. Professor Stiglitz in a 2006 paper4 stated: "The global financial system is not working
the way it ought to. Ordinary laws of physics say that water ought to flow downhill. The
parallel in economics is that money is supposed to flow from rich countries to poor countries,
and risk is supposed to be transferred from the poor, who are least able to bear it, to the rich.
But in the world today, things are moving in the opposite direction. To be precise, for the last
several years, money has been going from the poor countries to the rich - the net flow of
funds is going in the opposite direction of the way it should. Meanwhile, the poorest countries
in the world are left to bear the risks of interest rate and exchange rate volatility". Recent
events have provided a stark example of this. Risky flows can reverse and reverse swiftly
reflecting global perceptions as they move between risk-on and risk-off states. Emerging
markets are very often left dealing with sudden surges of capital inflows and reversals and
have struggled to manage the associated impact on exchange rate and interest rates.
9. These risks were clearly illustrated by the experience in India since the onset of the crisis.
As a country with persistent CAD, we needed net inflows of capital. But what the country has
experienced is surges (net capital inflows of the order of 9 per cent of GDP in 2007-08) and
sudden reversals (after the global crisis); inflows again in 2011-12 and reversals more
recently. The movement of capital flows have clearly dominated domestic liquidity
management and provided excess volatility to the exchange rate of the domestic currency.
While both push and pull factors suggest that India may get adequate capital to finance the
deficit, the pattern of inflows could remain volatile, and the impact would have to be
managed. Adding to these challenges is the fact that, very often, surges of inflows and
sudden outflows to/from the EMEs take place due to reasons which have very little to do with
their fundamentals. The Reserve Bank of India has been following a policy of allowing the
exchange rate to remain flexible and market determined. The result has been a sharp
postglobal-crisis depreciation, followed by significant appreciation, and then depreciation again.
While we are comfortably placed as far as foreign exchange reserves is concerned, recent
events prove that, under stressful conditions, market perception of reserve level could be
different. Any decline in reserves is often seen by the markets as a pressure situation.
10. All these factors affected the real economy as well with growth slowing down
significantly, though part of the slowdown was clearly attributable to a host of domestic
factors. There is a growing element of what could be called "perception" interconnectedness.
Any hint of trouble in one EME, for example, very often affects capital flows to all or several
EMEs. The impact is skewed disproportionately towards reversals. Countries, thus, get
interconnected due to exogenous factors, such as, being located in the same geographic
region, or perceived to belong to the same stage of economic development, for example.
This kind of "herding" behaviour of capital flows again poses significant difficulties for policy
making domestically while at the same time making international cooperation of any form for
such intangibles challenging. This is not to suggest that individual characteristics, strengths
and weaknesses of countries do not matter. As Ruchir Sharma very succinctly summarizes
in his book "Breakout Nations"5, "not all trees grow to the skies" and there are "scores of
emerging markets which have been emerging for decades". The post crisis normal in
emerging markets is likely to be one of a more sedate rate of growth as compared to the
precrisis years, the capital flows from the advanced world far more discerning with regard to the
macro fundamentals and performance of individual nations. As I will discuss a little later,
countries with current account deficits and relatively weaker macro-economic fundamentals
were impacted to a greater extent from the headwinds triggered by the Federal Reserve
Board's announcement of a scaling back of accommodative monetary policies earlier this
year.
11. Thus, financial globalization has increased the magnitude and complexity of
interconnectedness to a point where every country is vulnerable to repeated external shocks.
These risks were driven home in the aftermath of the global financial crisis and more recently
in the wake of the Fed announcement of possible tapering of its asset purchase programme.
These events, what I would like to briefly dwell on now, provide very vivid illustrations of the
uncertainties and risks associated with an interconnected world.
Unconventional monetary policies
12. Conventional monetary policies typically operate at the short end of the interest rate
curve. Central banks, entrusted with a mandate of low and stable inflation, operated on the
short term (typically overnight) interest rates in a bid to affect, at the margin, funding costs for
the banking sector. Through their operations on the short term interest rates, central banks,
attempt to determine how other market interest rates, including long term rates, behave. As
the global financial crisis exploded, central banks in advanced economies acted with unusual
policy activism - slashing policy rates to zero or near zero. Soon, however, they realised that
this was not enough to restore stability to the financial markets or restore the functioning of
key segments of the financial markets, let alone revive growth. Monetary policy, thus, found
itself constrained by the "zero nominal bound". Faced with a collapse in economic activity
and soaring unemployment without recourse to the conventional tools of monetary policy,
central banks responded with a slew of unconventional monetary policy measures. These
un-conventional monetary policy measures largely rested on two planks - forward guidance
of continued low policy rates over extended policy horizon and large-scale asset purchases.
The policies were unconventional in many ways:
i. First, the quantum of operations was very large and aimed, at least, initially, at
providing ample liquidity to the frozen markets;
ii. Second, was the unprecedented relaxation in collateral standards with central banks
accepting mortgage bonds, corporate bonds, commercial papers, exchange traded
funds and real estate investment trusts; in a sense becoming market maker of last
resort;
iii. Third, there were attempts by the central banks to directly affect long term interest
rates - the ECB entered into long term repo operations (LTROs) with maturity up to
three years while the Federal Reserve introduced two rounds of "Operation Twist"
purchasing longer term treasuries against sale of short-term treasuries in an effort to
depress the entire yield curve.
13. Un-conventional monetary policies were not confined to advanced economies. Some
emerging markets also responded with innovative measures to the headwinds of the crisis,
although interest rates did not hit the zero bound in these economies. For instance, the
Reserve Bank of India announced/operated a liquidity window for NBFCs and for mutual
funds at the height of the crisis in 2008 to assist the funds in managing redemption
pressures. Again, in July 2013, we had announced a special repo window for liquidity
requirements of mutual funds. Another innovative measure in this regard was the introduction
of a concessional window for the banks to swap their FCNR (B) dollar funds with the Reserve
Bank at a fixed rate for the tenor of the deposits.
14. The objectives of the unconventional policies were multi-fold. While the initial set of
measures were aimed at providing liquidity and at reviving dysfunctional segments of the
financial markets, the follow up measures were aimed at reviving credit offtake, incentivising
long term investment and fostering economic growth.
15. Policy rates in major advanced economies continue to remain at zero or near zero. With
the exception of the United States, there has been little indication of exit from unconventional
monetary policy in any of the other advanced economies. Balance sheets of central banks in
advanced economies have burgeoned to unprecedented levels. Central bank balance sheet
of major advanced economies currently stands at over 20 per cent of GDP as compared to
around 10 per cent in 2007. The expansion in the size of the balance sheet has been
accompanied by a significant lengthening of the maturity profile of central banks assets.
16. That there were risks from a prolonged period of monetary policy accommodation was
well understood and debated. There were risks that the policies may not work, for example, if
the transmission mechanism between the real and financial sector was impaired or if the
quantum of policy measure was, not appropriately judged. After all, central bankers were
operating in unchartered waters! There were risks that the policies may work too well and
unconventional monetary policy may become the new normal. In any case, it was clear that
unconventional monetary policies, however necessary and justified during periods of acute
instability, distort markets over time. They result in postponed balance sheet adjustments,
provide incentives for risk taking and increased leverage and carry the risk of distorting the
functioning of financial markets impairing the ability of markets to measure and price risks.
Most importantly, there were clearly risks from exit. The primary risks associated with the exit
from unconventional monetary policy are associated with an increase in interest rates,
especially long term interest rates. These risks include the risks of large losses of banks,
financial institutions and reserve managers on their fixed income portfolios, increased credit
risk, funding challenges and spillovers to the global economy. All of these underline the
importance of a calibrated and gradual increase in interest rates providing markets sufficient
time to adjust. But as recent events proved, the transition to the new equilibrium is likely to
be far from smooth. Several years of near zero interest rates and reduced volatilities have
curbed tail risks and provided incentives for higher risk taking. As perceptions of two way
risks return to financial markets, the markets are likely to overshoot, at least partially as a
result of changing sentiments, making the adjustment process far more painful than
necessary.
17. Recent market developments around the world illustrate how the anticipation of exit can
generate significant volatility. On May 22, 2013 Federal Reserve Chairman Bernanke
announced that the improvements to the US economy could prompt a tapering in its asset
purchase programme before the end of the year. The markets were spooked. Large capital
outflows, slump in the stock markets, and sharp exchange rate depreciations in emerging
markets followed at the mere prospect of the tapering down of Fed asset purchases.
Between May 22 and June 20 (following the FOMC press conference on June 19, when the
Fed chairman unveiled the plan for tapering off), exchange rates of emerging markets
depreciated considerably. This currency depreciation was concomitant with large outflows of
debt and equity capital. The trend continued even after June 20. Rough estimates place the
outflows from EMEs since May 22 at around US$ 44 billion till end August 2013. Emerging
market economies witnessed heightened volatility even as the sell-off in key markets
continued unabated. Emerging market equities went down by almost 11 per cent between
May 22 and the first week of September 2013, significantly underperforming their mature
market counterparts (which went down just one per cent during that period). MSCI indices for
emerging and developed market equities showed a clear decoupling in returns from equity
markets in the recent months. EM currencies and bonds (as indicated by the JP Morgan
Emerging Markets Currency Index and the Bloomberg USD Emerging Markets Composite
Bond Index) were down by about seven and eight per cent respectively during the same
period. These figures do not represent the trough level reached in the different markets
between May 22 and September 5, 2013. The trends have been accompanied by
significantly heightened volatilities across all markets.
18. The sequence of events over the last few months have almost been textbook perfect.
Currencies of capital recipients, especially those with large current account deficits, came
under pressure. While the textbook advice is to allow the depreciation, countries remained
wary of their exchange rate overshooting on the downside, especially given the possibility
that some domestic corporations may have un-hedged foreign currency debt. There were
also concerns about the inflationary consequences of exchange depreciation, worry that the
short term boost to competitiveness will not increase exports when partner-country growth is
sluggish, and imported intermediate content of exports is generally increasing. There
remained the risk that tighter monetary policy in hitherto capital recipient countries can slow
growth and exacerbate a pattern of slowing growth. Significant falls in stock markets, if they
persist, could also hurt growth through wealth effects. In fact, spillovers are not
inconsequential even for industrial countries. 10 year rates in Japan, Germany and UK were
all impacted after May 22, 2013.
Recent trends in Indian financial markets
19. In India, the impact of the Fed announcement has been striking, as in the case of many
other emerging markets, especially those with current account deficits. The net FII
disinvestment from the Indian debt market since May 23, 2013 (till August 30, 2013) was
around US$ 10.4 billion as compared to net investment of US$ 5.6 billion during the period
January 1-May 22, 2013. There were reversals in FII investments into equity segment from
India as well, with net FII disinvestment into equities since May 23, 2013 (till August 30,
2013) standing at USD 2.8 billion as compared to the investment of USD 14.35 billion during
the period January 1-May 22, 2013.The impact on Indian financial markets was one of the
most severe amongst emerging markets. Between May 22 and September 4, 2013,
i. The currency depreciated by 17.3 per cent;
ii. India's equity market was down by 7.9 per cent;
iii. 10 year interest rates were higher by 123 basis points;
During this period, US 10 year yields rose by about 100 bps.
The volatility in financial markets spread like a contagion through the interconnectedness in
markets with the rupee depreciation weighing on the stock market, foreign outflows from the
debt market further aggravating the FX markets and impacting yields as also the equity
markets. Things have improved considerably since early September though the risks of
heightened volatilities persist, as I will shortly discuss.
Triggers and drivers
20. A key driver of capital inflows over past years had been loose monetary policies in
mature economies, which were "pushing" money into the EM world. This was helped by
strong growth in EMs, "pulling" money into those countries. When both the factors lost
strength recently, investors became increasingly concerned about an exit from easy
monetary conditions, notwithstanding the announcement of an aggressive expansionary
policy in Japan. Additionally, growth in many emerging economies has lost some momentum
recently, while growth prospects in mature economies have brightened somewhat, thus
reducing the relative attractiveness for developed market investors to move capital abroad.
The Fed comments on May 22 were the immediate trigger which brought these factors to
centre stage.
21. India, as one of the major absorbers of foreign capital has been vulnerable to these
global trends. But, it was not only India's problem - many EMs were hit, albeit to different
degrees with domestic macroeconomic conditions, especially the current account deficit, to
some extent moderating or accentuating the headwinds from the tapering announcement.
Structural factors
22. These trends were sparked off by fears of surging global risk aversion and a worsening
environment for capital flows in the wake of the Fed statement. There were, however, some
domestic structural factors which aggravated the trends. Key in this regard has been the
deterioration in India's external sector performance including a high trade and current
account deficit. The deterioration in the external sector, which began in Q3 of 2011-12, has
persisted. The impact of external developments on Indian economy was mainly evident
through trade channel and more recently through finance and confidence channels. Although
India's exports started showing deceleration in month of October during FY 2011-12, the
impact of slowdown in major trading partner countries on India's exports was more
pronounced in 2012-13. During 2012-13, merchandise exports contracted by 1.8 per cent as
compared with a rise of 21.8 per cent in 2011-12. Growth in export to major trade partner
countries either declined or decelerated in 2012-13. In particular, exports to trading partners,
viz., EU, China, Singapore, Hong Kong and Japan were impacted significantly. Even though
sluggish trend in exports continued in Q1 of 2013-14, there have been signs of recovery
from July 2013 onwards. Despite slowdown in domestic economy in 2012-13, India's
merchandise imports grew marginally. Although non-oil non-gold imports declined in
2012-13, Petroleum, Oil & Lubricants (POL) and gold imports remained at elevated levels.
This led to widening of trade deficit from US$ 183 billion in 2011-12 to US$ 191 billion in
2012-13. The larger merchandise trade deficit along with the significant deceleration in
services exports and higher income payments led to a further widening of the CAD in
2012-13. CAD remained elevated in the first quarter of 2013-14 at 4.9 per cent of GDP but
is expected to narrow substantially in the following quarters.
23. Net investment income worsened in recent past reflecting lower interest/discount
earnings on foreign exchange reserves and rise in interest payments on growing foreign debt
including NRI deposits, external commercial borrowings and short term trade credits. The
CAD-GDP ratio reached a historical high of 6.5 per cent in Q3 of 2012-13 before moderating
to 3.6 per cent in Q4. Overall, CAD to GDP ratio stood at 4.8 per cent in 2012-13 as
compared with 4.2 per cent in 2011-12. At this level, CAD was well above the estimated
sustainable level for India and has emerged as a key macroeconomic risk factor in recent
period. The experience showed that CAD can increase substantially even in a low growth
environment if supply constraints impact both growth and external trade as has been the
case with us. The higher CAD was accompanied by an increase in the proportion of
nonstable flows. These flows, comprising FIIs and short-term credit, to total capital flows
accounted for over half of the total capital flows in 2012-13 compared with one-third in
2011-12. This reflects a continued dependence on short-term flows to meet the widening
CAD, which can enhance the vulnerability of the economy in a scenario of adverse global
financial conditions.
24. As the recent events unfolded, concerns about the impact of exchange rate depreciation
on the balance sheet of corporates and banks came to the fore. While banks in the country
have limited direct exposure to exchange rate movements, the same is not true of corporates
whose overseas indebtedness has risen over the last few years. Such exposures, which are
to some extent, un-hedged, rendered corporate and (indirectly) bank balance sheets
vulnerable to the sharp exchange rate movements.
25. There were concerns about the size of the fiscal deficit and the possibility of slippage
from fiscal deficit targets although the Government is unequivocally committed not to breach
the fiscal deficit target. Supply side bottlenecks including infrastructure and issues of
governance also weighed on growth even as GDP growth slipped in recent quarters. Supply
side factors also ensured that inflation remained elevated and constrained monetary policy
action for stimulating growth. It became increasingly evident that more needs to be done to
address structural factors.
Risks and challenges
26. The recent episodes underscored several risks and threw up many challenges - for the
economy, for policy makers and, I must say, for the global economy. Let me briefly touch
upon some of them:
i. The first challenge arose in the context of maintaining financial stability amidst the
recent global turmoil and conducting macro-economic and regulatory policy in
markets which are interconnected and globally integrated. The global financial crisis,
the Eurozone sovereign debt crisis as well as the currency market volatility over the
last few months have emphatically demonstrated how external developments
influence our domestic macroeconomic situation in complex, uncertain and even
capricious ways. In making our policies, we have to factor in external developments,
particularly the spillover impact of the policies of advanced economies on our
macro-economy. This will become even more important as India's integration with
the global economy increases. Surely, globalization is a double edged sword. It
comes with costs and benefits.
ii. The recent experience has once again demonstrated that vulnerabilities in one
market transmit to other markets at lightening speeds often raising new challenges
before earlier ones are addressed. The Reserve Bank tried to use the liquidity and
interest rate channel to address the volatilities in the forex market. This resulted in a
sharp uptick in long term yields and impacted the functioning of the money and
government securities markets requiring a series of market measures to arrest the
disproportionate rise in yields and prudential measures to enable banks to manage
the sharply higher yields. Concerns about the collateral impact of higher interest
rates on growth also emerged.
iii. The recent events have again focused attention on the need for and efficacy of
capital controls to manage capital flows. It has raised questions about the benefits
and costs of capital account liberalization. A recent paper by Helene Rey of the
London Business School,6 highlights the fact that the impossible trinity of fixed
exchange rate, an open capital account and an independent monetary policy has
dilemma
now been rendered irrelevant. What is relevant today is a or an "impossible
duo" - free capital flows may inevitably mean a loss of monetary policy
independence.
iv. Till recently, in India, foreign investment in debt markets was not permitted to any
significant degree. The market has slowly been opened up to foreign funds in recent
years. Ironically, the outflows during the recent months happened from exactly these
markets re