The policy implications of the Tequila effect
Latin America has been strongly affected by the changes that have occurred in capital flows over the last twenty years. During the 1970s, a large supply of funds was made available to the region; then, during the 1980s, there was a serious shortage of financing, and the region became a net exporter of funds. Between 1991 and 1994, it became a net recipient of large amounts of funds again, only to experience another sharp reduction of some of the main flows in late 1994 and early 1995, and a renewed access in 1996–97. In 1998–99, Latin America has been experiencing a new shortage of external financing, aggravated by a general worsening of the terms of trade. A crisis centred in Asian countries has now been the origin of a new recessive macroeconomic adjustment in the region.
KeywordsExchange Rate Current Account Real Exchange Rate Capital Flow Capital Inflow
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