Foreign investment in US
plummets 60%

The steepest drop in a decade could make
financing the recovery more difficult as domestic
savings are traditionally low

WASHINGTON - Foreign investment in the United States suffered a
precipitous 60-per cent drop last year, as the US market lost some of its
lustre due to an economic recession and terrorist attacks, according to the
latest government figures.

Foreigners injected US$132.9 billion (S$239.2 billion) last year to acquire
or establish businesses in the US, down from a record US$335.6 billion in
2000, said the Commerce Department's Bureau of Economic Analysis.

'The decrease reflected weakness in the US and world economies, and a
sharp drop in overall merger and acquisition activity worldwide,' the
bureau said in a report made public on Wednesday.

The figure marks the steepest drop in foreign investment in a decade and,
according to some analysts, could make financing the fledgling US
economic recovery more difficult because US domestic savings are
traditionally low.

Foreign-owned assets in the US totalled US$9.4 trillion while US claims
on the rest of the world amounted to US$7.2 trillion, according to the
White House Council of Economic Advisers.

But US officials noted that despite the decrease, the current level of
foreign investment was still higher than in any year before 1998.

Surprisingly, the most dramatic vote of no-confidence came from Britain,
one of the US' closest allies, whose capital outlays fell from US$110.2
billion in 2000 to US$16.6 billion a year later. Other Europeans shunned
the US market almost as much.

Meanwhile, the Japanese were clearly suffering from a severe case of cold
feet. In just one year, their outlays dropped from US$26 billion to less
than US$3.8 billion.

Australia was the only major country to actually increase its US
investments from 2000, pouring US$5 billion into the US economy,
according to the report.

The bureau said foreign investments fell particularly low in
telecommunications and other high-tech industries following the bursting of
the dot.com bubble.

Some economists believe, however, that less foreign capital may not have
a serious effect on the US economy.

'The sharp reduction in interest rates over the past year reduces the need
for large capital inflows,' said Mr Fred Bergsten, director of the Institute
for International Economics.

'Investment is now limited by excess capacity and lagging demand, rather
than by any shortage of capital, so that particular benefit of the earlier
inflows has largely disappeared,' he argued in
a recent speech. -- AFP

Quelle

<center>

<HR>

</center>