Private capital flows surged to $187-billion in the year from just $124-billion in 2002, said a quarterly report by the global association of banks and finance firms.
Net private capital flows to emerging economies were expected to advance again to 196 billion dollars in 2004, the IIF said.
"The strong increase in flows to emerging markets in 2003 and the ensuing sharp narrowing of spreads reflect the low global interest rate environment and, to a degree, the improved policy performance in a number of emerging markets economies," said institute chairperson Josef Ackermann.
"Prudent risk management by investors and creditors remains a priority," he said.
William Rhodes, first vice chairman of the foundation and the chairperson of Citibank, warned of risks ahead.
"Sound economic polices and performance combined with easy monetary conditions and ample liquidity in financial markets supported the rising volume of flows to emerging markets last year," he said.
"There is now a risk that markets may again be moving ahead of fundamentals, as was the case in 1997 prior to the Asian crisis".
Governments in emerging economies must stick to sound economic policies and reforms, he said.
"Investors need to remind themselves of the importance of differentiation among emerging market assets and practice sound risk management," Rhodes warned.
Net private equity portfolio flows, which amounted to just $1,1-billion in 2002, reached $30,3-billion last year with China and South Korea alone accounting for $19-billion.
Those flows were expected to ease to $28,6-billion this year.
Bond investment flows, which surged from $17-billion in 2002 to $44,7-billion in 2003, were likely to edge higher to $45-billion dollars this year, with Brazilian sovereign and corporate entities absorbing nearly $13-billion.
The foundation's managing director, Charles Dallara, said last year's gains would be consolidated in 2004.
"Our forecasts today assume accelerating growth in Western Europe, North America and in many of the emerging market economies," he said.
"However, greater than expected rises in US interest rates and unanticipated events in financial markets could reduce the level of net private capital flows from the almost 200 billion dollars that we are now projecting and could possibly lead to a widening of spreads".
The foundation projected 4,3% growth in US gross domestic product (GDP) this year, 1,7% growth in the 12-country euro zone and Japanese growth of 1,7%.
Emerging markets overall were expected to enjoy economic growth of 5,3% in 2004. – Sapa-AFP.
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