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Article: Managing temporary capital inflows: lessons from Asia and Latin America.(Distinguished Lecture)(Report)
- Article from:
- Pakistan Development Review
- Article date:
- December 22, 1995
- Author:
CopyrightCOPYRIGHT 1995 Reproduced with permission of the Publications Division, Pakistan Institute of Development Economies, Islamabad, Pakistan. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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1. THE NATURE OF CAPITAL FLOWS IN THE 1990s
As witnessed by Mexico and Argentina in 1995 and by the Southern Cone countries of Latin America in the early 1980s, the macroeconomic adjustment to a sudden reversal of foreign capital flows can be extremely painful. There are at least four major reasons why governments and central banks should care about the sustainability of the capital flows which their economies can tap abroad:
* First, international capital markets are highly imperfect due to enforcement problems and information asymmetries. Trade in financial assets, unlike trade in goods, is incomplete and intertemporal, based on promises to pay in the ...