| Abstract: |
Capital inflows to some developing countries have increasedsharply in recent years. Impelled by better economic prospectsin those countries, lower international interest rates, anda slowdown of economic activity in the capital-exporting countries,the inflows have furnished financing much needed to increasethe use of existing capacity and to stimulate investment. Butcapital inflows can bring with them their own problems. Typicalmacroeconomic repercussions have been appreciation of the realexchange rate, expansion of nontradables at the expense of tradables,larger trade deficits, and, in regimes with a fixed exchangerate, higher inflation and an accumulation of foreign reserves. Should government intervene to limit some of these side effects—andif so, how? The question is especially pressing in the wakeof the Mexican crisis of December 1994. This article looks foranswers in the experience of four Latin American and five EastAsian countries between 1986 and 1993, examining the effectsof the capital inflows on the economy and comparing the differentways in which these countries responded to the problem of "toomuch" capital. |
