World Bank sees emerging market investment plunge

MIAMI (Reuters) - Total investment into emerging market economies will likely drop to some $600 billion (300 billion pounds) in 2009, from a peak of $1 trillion last year, as the global credit crisis discourages bank and fund investors from taking on risk, a World Bank official said on Wednesday.

Yukiko Omura, executive vice president with the bank's Multilateral Investment Guarantee Agency, or MIGA, said current market conditions are "disconcerting," and will eventually affect investment and financing of infrastructure projects in emerging countries.

"I do not think we have seen the worst yet, the crisis seems to be far from an end," she told a Latin American infrastructure forum organized by CG/LA Infrastructure in Miami.

"Weaker balance sheets of banks should decrease capital flows to the developing world," she added, forecasting that the level of investment for this year will be near flat from 2007.

Key U.S. and European banks have been struggling with liquidity issues as they are forced to write down the value of their mortgage-backed securities in the wake of the U.S. housing and credit market crisis.

"Banks now can not take on risk," Omura told Reuters after her presentation.

As traditional sources of financing dry up, however, emerging market countries are increasingly relying on other agents, she said, noting sovereign wealth funds, private infrastructure funds and so-called South-South investments among developing countries.

Emerging economies will not only suffer the impact of an expected U.S. recession, Omura said, but will also need to curb their own growth to fight a surge in commodity-driven inflation.

"Inflation in BRIC countries is reaching 6 percent, double from last year," she said, referring to the group of fast-growing emerging countries formed by Brazil, Russia, India and China.

"Those countries, including China, will have to take action to curb growth," Omura said.