MANILA The Asian Development Bank (ADB) has warned the prospect of capital flight from East Asia may worsen the region's economic downturn.

The Manila-based bank's unit monitoring the economic recovery of the region from its worst financial crisis in 1997-1998 said in a report released here there was an increased outflow of private capital from East Asia.

It described this deterioration as "a new strain of contagion related to the global supply network."

The ADB cited a report by the Washington-based Institute of International Finance (IIF), which said net private capital flows to Indonesia, South Korea, Malaysia, Philippines, and Thailand were likely to turn negative this year.

Private capital flows were at the heart of the 1997-1998 crisis which plunged most of East Asia into a recession.

"Now there are fears that the global economic slowdown, aggravated by domestic concerns, could once again cause a deceleration of private capital inflows in emerging markets and thereby magnify the economic downturn," warned the report prepared by the ADB's Regional Economic Monitoring Unit (REMU).

REMU Manager Pradumna Rana told AFP that "unlike the 1997-1998 crisis, the amounts of capital outflows expected now will be modest and of a different type," suggesting there would not be a recurrence of the previous crisis.

He said the capital flight during the past crisis stemmed from investor panic, outflow of "hot money" and banks not rolling over debt while the current outflows were largely repayment of rescheduled debt.

According to the ADB report, the external payments positions of most East Asian countries were also more robust now than they were during the last crisis.

"These should make an economic tailspin similar to that of 1997-1998 only a remote possibility," it said.

Rana said the present sharp depreciation of many Asian currencies was "difficult to associate with the capital outflows at the present time."

The currency declines were mainly due to a sharp export slowdown compounded by uncertainties in the emerging markets of Argentina and Turkey, he said.

"What is critical is a continuation of the reform exercise and avoiding reform fatigue," Rana said.

REMU, among others, supports an economic surveillance mechanism of the Association of Southeast Asian Nations (ASEAN) and houses a so-called Asian Recovery Information Center monitoring the East Asian recovery from crisis.

The present economic downturn in the region began in the electronics sector and is now spreading to other sectors and holding back the region's recovery from the crisis four years ago.

The IIF has forecast that 3.5 billion dollars of private capital will flow out of the "East Asian 5" -- Indonesia, South Korea, Malaysia, the Philippines and Thailand -- this year compared with the net inflow of about five billion dollars last year, AFP said.

"As growth slows down sharply among the industrialized countries this year, the East Asia 5 face reduced investment flows that are intended to support the outsourced industries," the ADB report said.

Portfolio investment is expected to fall even more sharply than foreign direct investment, aggravated in part by the anticipated fallout from the economic difficulties of Argentina and Turkey.

But multilateral agencies expect net private capital inflows to recover next year, contingent on a turnaround in the U.S. and with it the global and regional economies.

Domestic concerns including political uncertainties and the reluctance to push ahead with reforms in some regional economies may also delay the return of private capital, the ADB report said.