With the first signals of a global economic recovery, prospects for private capital flows to emerging markets improved in the first quarter of 2002. Despite the concerns over corporate accounting practices in the U.S. and the deepening of the economic and financial crisis in Argentina, emerging equity and bond markets have outperformed those in industrialized countries. Emerging market equities and bonds in the first quarter of the year continued to show the strong performance that started in the fourth quarter of last year. The overall JP Morgan Chase EMBI+ excluding Argentina rose about 20% over the last two quarters and the MSCI Emerging Market Free Index of equities rose about 11% in the first quarter of this year. Although investors seem to be discriminating better among different emerging markets, contagion from events in Argentina is surfacing in Latin America. What started as a default in Argentina last year has led to currency devaluation in Uruguay, and has complicated the debt and financial situation in Brazil.