T he biggest swing factor in capital flows to Asia has been commercial-bank lending. The net outflows are due to repayments by Asian borrowers and reflect sharp reductions in short-term borrowings. Thailand's short-term foreign debt has been reduced by half, for example. A report released on September 27 by the United Nations Conference on Trade and Development shows that while worldwide FDI continues to grow, developing countries claimed a smaller share in 1998, largely due to a surge in FDI into the booming U.S. economy. What happens next in the U.S. economy, in fact, is the wild card in the generally rosy outlook for capital flows to Asian and other emerging markets.
History shows that rising U.S. interest rates usually reduce capital flows to emerging markets.
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