Asia, once the darling of emerging markets, now knows what it is like to suffer at the hands of fickle private investors. The huge capital outflows, and the harsh judgments that have been made by the market since last October, are still being felt, and estimates over how much less a factor private investment is going to play in the coming year are already beginning to abound. For multilateral institutions such as the International Monetary Fund and the World Bank, the reluctance of foreign investors to return to countries which have inadequate economic policies is understandable, though regrettable. The Organisation for Economic Co-operation and Development has also agreed there is danger that reduced capital flows from foreign investors will have ramifications far beyond stagnation in the economy. The OECD argues that such capital flows are a reforming influence, as governments and their populations benefit from the increased choice and cheaper prices that foreign money and competition often bring. The result is a benevolent cycle whereby more foreign investment leads to greater openness, which results in more foreign investment. The institutional backbone of a country also becomes developed as governments create financial-market regulators, level playing fields and processes to stamp out corruption. However, if the process is disturbed because foreign investors take the view that the relative attractiveness of one country to another has markedly diminished, then the issue becomes more complicated. Mass outflows occur, currencies come under pressure, and the ensuing turmoil can lead to political instability. Countries who feel spurned can become inward-looking and seek to blame their ills on those same investors. The fall into protectionism that can follow is one development the OECD says it is vital to stop. It says capital flows are good and all restrictions on them are bad, and protectionism, far from helping a country overcome its problems, exacerbates them. More importantly, the OECD has sought to demonstrate that restrictive investment policies can also create highly inequitable global development. In 1996, about 80 per cent of capital flows were targeted at only 12 countries, all of which had relatively open markets, good economic prospects and sound policies to underpin future growth. This statistic highlights how much of a role government, or official financing should play. Only such concessional aid is willing to enter into economically inhospitable countries and provide the seeds for future increased private-sector investment. Yet such official aid is diminishing fast. In the early 1990s, official development finance was a key part of overall external finances flowing to developing countries, but since 1994 the picture has changed. Private flows from bank lending, foreign direct investment, bonds and even some portfolio investment has increased sharply, outstripping official aid. No one is arguing that private flows will disappear in Asia, but certainly most economists believe that Asia will see a slowdown. What better opportunity then, to spur an increase in official sector aid? But governments are not forthcoming. Aid is often linked to trade, a factor which will prohibit some of the most needy countries from qualifying. Some cannot even afford to make the orders that Western governments look for before extending credits. The solution lies partly in a political change of heart, but mainly in a continued demonstration by countries that they are a worthy cause, because they employ socially, morally and economically acceptable policies that make them responsible members of the global community. It is not for nothing that China has so staunchly defended the yuan. Similarly, other Asian countries should follow its example. Show that you won't misbehave, and you could receive some much needed help.