Banks seek bigger say in emerging market policies

ZURICH, Mar 31 (Reuters) An international group of commercial banks announced an initiative on Thursday aimed at giving private lenders a bigger say in influencing economic policies in the emerging market countries where they invest.

The Institute of International Finance said it has set up a committee that can send teams to emerging countries to evaluate financial and economic policies. The teams will recommend to policymakers in these countries ways of avoiding the kind of capital crises which have hit a number of emerging economies.

William Rhodes, Citibank N.A. Chairman and a veteran negotiator of Latin American debt bailouts, said the group will plug a gap in the global financial system.

''The dynamics of today's financial system require that they (the private sector) have a seat at the table,'' Rhodes told an news conference held to unveil the initiative by the IIF, a lobby group representing banks operating in 60 countries.

The International Monetary Fund has long issued often unpopular demands to emerging market countries, but these economies are relying less on IMF and public sector lending and increasingly on funding from private investors.

The new committee, called the Group of Trustees and dominated by commercial bankers but headed by policymakers including European Central Bank President Jean-Claude Trichet, will implement a code of conduct for borrowers and creditors.

This code was agreed in 2004 by financial policymakers of the Group of 20 industrialised and developing nations.

The committee can send a task force to risky countries to meet leaders and hand out advice on such issues as cutting current account deficits or publishing financial data -- just like IMF teams sometimes do.

Trichet, long an advocate of a voluntary code of conduct between investors and creditors to improve investing conditions in emerging markets, said the new Group of Trustees ''represents an important initiative in the development of the architecture of emerging markets financial system''.

Over the past two to three decades, finance ministers and central bankers from the Group of Seven top industrial nations and the IMF have dominated financial reforms, lending to emerging markets and giving public sector advice.

But with emerging markets rapidly industrialising and capital markets vastly expanded, public sector financing of developing countries has diminished and power has shifted to the bank lenders.

Net private capital flows to emerging markets hit a record 0 billion in 2005, the IFF said on Thursday. It forecast flows will be 7 billion this year, the second highest level since 1996, just before the Asian currency crisis.

This vastly outstripped net public capital flows where repayment of sovereign loans is estimated to cause an outflow of .9 billion this year, after a .8 billion outflow in 2005, the IIF said.

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