A lack of investor confidence in the Russian judicial system and corporate governance in the wake of the Yukos debacle is overshadowing lucrative business opportunities, according to the Institute of International Finance.

In a report released at the annual meetings of the International Monetary Fund and the World Bank, the IIF, the global association of financial institutions, warned that investors had been "increasingly disturbed by the government's heavy handed action to seize [oil company] Yukos's assets for nonpayment of taxes".

"Investor confidence had been shaken on a scale not seen since the Russian 1998 financial crisis," it said. Assurances by President Vladimir Putin over the past year that the government respected property rights and the rule of law "have not been confirmed by the realities of the marketplace". Russia remains the largest recipient of capital inflows in emerging Europe, owing to the high oil price. But the IIF said that concerns over the protection of ownership rights had encouraged an increasing number of Russians to shift money overseas.

The IIF contrasted problems in Russia with more rapid improvement of government policy and corporate governance in other emerging market economies, which have encouraged rising capital inflows. The IIF projected that the level of net private capital flows to emerging market economies would rise to $226bn in 2004 from $213bn last year.

Finance ministers meeting in Washington over the weekend said the backdrop of strong growth provided the opportunities for countries to pursue reforms to boost growth and reduce the risks to the global outlook. The IMF's supervisory International Monetary and Financial Committee said in a statement the high and volatile oil price posed a risk to growth in oil-importing countries and called for greater transparency in energy markets and for oil-producers to increase capacity.

The finance ministers called for "bold reforms" to strengthen fiscal positions, remove structural impediments to growth, support the correction of global imbalance and accelerate poverty reduction. China resisted pressure from the Group of Seven leading industrialised countries to move to a more flexible exchange rate. In a session with the G7 finance ministers and central bank governors on Friday, China said it was committed to moving to a more flexible currency regime, but more time was needed for reforms of the banking sector and state-owned enterprises.

John Snow, US Treasury secretary, welcomed China's efforts but said the US was "not satisfied" with the pace of progress.

The G7 pledged to come to an agreement on debt relief for Iraq by the end of the year. It also said in its statement that the group was committed to addressing debt sustainability in the world's poorest countries and would issue a progress report by the end of the year.

G7 finance ministers could not agree on how much of Iraq's $120bn of bilateral debt should be written off. The US has called for 90-95 per cent to be written off. France has proposed an immediate 50 per cent write-off with the possibility of more later.

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