FOREIGN direct investment into Asia remained positive during the first quarter, despite the economic crisis, the United Nations Commission on Trade and Development (Unctad) is expected to announce this week. The wide-ranging analysis is expected to reveal that a surge in mergers and acquisitions and spending on 'greenfield' production sites offset a downturn in private capital investment and bank lending. The report, which will be launched in Asia, is seen offering some respite from the tidal wave of bad news that has swamped the region. Sources said the report would conclude that inflows 'remained positive', maintained by indebted companies seeking to raise cash and by the surge in the number of United States and European companies taking advantage of bombed-out asset values and currency devaluations to buy Asian corporate assets. The report is expected to show portfolio investment suffered a significant outflow as economic prospects weakened and exchange rates came under pressure, and that the sharpest decline in net private capital inflows was from commercial banks. Maturing short-term debt was not fully rolled over for several economies because of the erosion in confidence about economic prospects towards the end of last year. The dip in Asian portfolio investment is expected to exceed last year's US$21 billion fall, which followed inflows of about $56 billion the previous year. Official flows to the region are likely to have increased because of special support provided by the International Monetary Fund, World Bank, the Asian Development Bank and governments. Reserves also are likely to have fallen sharply - having dipped $23 billion last year - despite official assistance and a substantial narrowing of current account deficits. The outlook for the rest of the year will remain uncertain because of questions about the ability of regional economies to stabilise their external financing positions. Forecasting for the region is made harder by difficulties in assessing the impact of financial restructuring and support packages. The report is expected to warn that economies within the region remain vulnerable to outflows and could run into additional difficulties.
