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
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