Rio de Janeiro, Brazil, March 6, 2008 — Rio de Janeiro, Brazil, March 6, 2008 - "The forces of globalization and the pursuit of sound economic policies by many emerging markets countries have resulted in record levels of net private capital flowing to these countries now. A major rise in these flows was seen last year, and even with a slowing global economy, the scale of capital likely to flow to emerging markets in 2008 will be formidable," said Dr. Josef Ackermann, Chairman of the Institute of International Finance's Board of Directors as well as Chairman of the Management Board and the Group Executive Committee of Deutsche Bank AG.

The IIF is the global association of financial services firms with more than 370 member institutions headquartered in over 65 countries. The IIF estimates in a new report today that net private capital flows to emerging markets rose to $782 billion in 2007 from the previous record level seen in 2006 of $568 billion. The IIF forecasts that the 2008 total will be $731 billion with the moderation from 2007 largely reflecting the general slow-down in global economic growth.

Speaking at the IIF's Spring Membership Meeting, Dr. Ackermann noted, "This is the first full membership meeting of the IIF to be held in Latin America. We are meeting at a time when it is evident that the sound approaches taken by governments and businesses to promote investment are extremely encouraging, as reflected, for example, by the record levels of capital inflows. Given the slowing pace of growth in the U.S., EU and Japan, emerging markets economies are going to be a particularly important source of support for global economic growth this year."

More than 400 senior executives from firms across the world, as well as leading public officials, have gathered in Rio de Janeiro for the IIF's meeting. Mr. Roberto Setúbal, IIF Vice Chairman and President of Banco Itaú, which is the lead host of the meeting, noted that, "A central issue before us is the degree to which the problems in the leading industrial economies will impact emerging markets, including those in Latin America. I am confident that Latin America will come through the difficulties in good condition. In Brazil, the policies introduced to stabilize the economy and decrease vulnerability to shocks from abroad have improved the climate for private investment. Double digit increases in investment, in response to strong demand for Brazil's exports and robust growth of domestic demand, are driving rapid growth of the economy and further improvement in the country's fundamentals."

Speaking at a press conference, IIF First Vice Chairman of the Board of Directors William R. Rhodes, Chairman, President and CEO, Citibank N.A., Senior Vice Chairman, Citigroup Inc, stated that, "The IIF's projected levels of capital flows for 2008 largely reflect growing investor confidence in this asset class based on the record of sound economic policies that so many emerging market governments have implemented. The new report does, however, highlight differences in the outlook among emerging market economies. The report notes the continuing overall strength of Asia/Pacific and of many of the countries of Latin America, while raising concern about some of the emerging market economies in Europe."

More generally, Mr. Rhodes stressed that, "It is important to recognize that the accelerating globalization of recent years, with strong growth in cross-border trade and investment, means that no single economy, however large, is immune from the strains that we are now witnessing, most notably in the United States. This is a time for major efforts by governments in emerging markets to move forward to strengthen macroeconomic policies even further and make meaningful progress on structural reforms in the face, in particular, of what I expect will be an increasingly challenging global environment in the period immediately ahead. Indeed, in looking at the factors underpinning capital flows to emerging markets, notwithstanding the fundamentals, it is not clear that the current level of flows is sustainable."

Global Economy

The decline forecast in capital flows to emerging markets in 2008 largely reflects a significant moderation in global output growth. The GDP of the mature economies is projected by the IIF to grow at 1.8 percent this year, compared to an estimated 2.3 percent in 2007. For emerging markets, the IIF sees 2008 growth at 6.6 percent, compared to 7.3 percent in 2007.

Mr. Francisco González, IIF Vice Chairman of the Board of Directors and Chairman and Chief Executive Officer, BBVA, noted at the IIF press conference that, "There is no question that many emerging market countries are advancing to the center of the stage in the world economy and are contributing to global growth today. This is especially evident at a time when the leading industrial economies are experiencing slower growth. For many years we have seen the momentum of globalization in encouraging trade and investment, and a very important result, which is increasingly clear, is that we have a more balanced global economy with a greater number of centers of growth that can contribute to a healthy world economic environment."

FDI

The IIF said that direct investment into emerging economies is currently on an upswing with net inward FDI to total $286 billion this year, compared to an estimated $256 billion in 2007 and $167 billion above the 2006 volume. The IIF noted that the strength of FDI comes despite an evident rise in global corporate caution in recent months. Strong inward FDI flows are projected across a broad array of economies with China expected once again to lead the way receiving net $88 billion, which is in line with the estimated volume seen in 2007. The IIF report noted that FDI flows to Latin America this year are likely to match last year's record of around $55 billion.

Portfolio Equity

The IIF's report noted that there was significant euphoria in the closing months of last year in many emerging equity markets, fueled in part by strong inflows from portfolio investors in mature markets. More recently, however, the euphoria appears to have faded, partly driven by global growth concerns and valuation worries.

Net portfolio equity flows are projected to be $39 billion in 2008, down from $43 billion last year. Brazil and India dominate these flows, and are projected to see inflows of about $23 billion and $20 billion, respectively, this year.

Bonds and Commercial Bank Flows

The IIF noted the resilience of non-bank private sector debt flows (largely bonds), which are projected to decline only slightly to $204 billion this year from an estimated $217 billion last year. The resilience is seen as noteworthy as this sector could have been expected to be directly affected by the credit problems in mature markets. Issuance of bonds in international markets has declined since last August, but issuance in domestic markets continues apace attracting foreign investors.

Meanwhile, net commercial bank lending into emerging markets was robust in 2007 with an estimated total of $266 billion. A moderation to $202 billion is projected for this year. The IIF noted that the region most dependent on net bank finance remains Emerging Europe, where there are legitimate concerns about high current account deficits and possibly over-stretched local banking systems. The IIF added that the nine Emerging European countries in its sample account for about two-thirds of aggregate net bank lending to the whole group of thirty countries.

Leading Recipient of Capital Flows

The IIF pointed out that Russia was the single largest recipient among emerging market countries of net private capital inflows last year with a record estimated total of $150 billion and it is seen as leading again this year with a projected inflow of $125 billion. Significantly, Russian corporate foreign borrowing jumped more than threefold to $92 billion in net terms. About one-half of the increment was due to large financings by Gazprom, to acquire a foreign investor's controlling stake in a large gas field and by Rosneft, to finance the acquisition of Yukos' remaining assets. Foreign borrowing by banks rose to $54 billion, an increase of about 10 percent, which was used mostly to help finance expanding domestic lending.

Emerging Markets as Capital Exporters

The IIF noted that emerging economies have become significant net exporters of capital largely through their investment of rising reserves. As a block, Emerging Economies still run significant current account surpluses. In 2007, our sample of 30 countries ran an aggregate current account surplus of $436 billion. Although this is expected to decline somewhat in 2008, the surplus would remain substantial (about $345 billion). Combined with net private sector capital inflows of $730 billion, this implies yet another large amount of emerging market funds to be deployed abroad during 2008. In 2007, net capital flows from the 30 emerging economies in our sample were a staggering $1.38 trillion, up from $205 billion as recently as 2000. In 2008, this total is projected to drop slightly, but nonetheless remain close to $1.3 trillion. This total combines four broad categories of net outflows. The largest component (69 percent in 2007) is made up of official reserves; the next largest is net lending abroad by resident non-official entities (18 percent in 2007). Only 13 percent is accounted for by net equity outflows (this would include most flows associated with sovereign wealth funds), which is mainly FDI (8 percent), with portfolio equity trailing at 5 percent.

Major emerging markets included in the IIF's report on capital flows are the following: