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Real Macroeconomic Stability and the Capital Account in Chile and Colombia

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  • Ricardo Ffrench-Davis
  • Leonardo Villar

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Abstract

In 1995, when contagion from the tequila crisis was spreading in latin America, both Chile and Colombia were exempt from contagion and presented high rates of economic growth. Several analysts attribute this positive performance to the fact that both had undertaken prudential measures to avoid excessive exposure to short term capital flows and pressures towards excessive real exchange rate appreciation: Both countries were using a reserve requirement on short term foreign indebtedness, crawling-bands, and other instruments for reducing domestic vulnerability to capital flows. The parallelism between Chile and Colombia continued after the Asian crisis. In this period, despite the fact that short-term liabilities represented only a small share of foreign debt in both countries, vulnerability to the international financial crisis was high. In both, real interest rates rose sharply in 1998 and GDP growth was negative in 1999. The similarities between Chile and Colombia, however, do not go much farther. During the 1990s, GDP growth rates were very high in Chile while in Colombia they were below historical standards. Chile had fiscal surpluses and high private savings, while in Colombia there was a rapidly increasing fiscal deficit and falling domestic savings. This paper presents a comparative analysis of the macroeconomic policies of Chile and Colombia during the 1990s, in particular the exchange rate regimes, the capital account regulations, and the gestation and management of financial crises.

Suggested Citation

  • Ricardo Ffrench-Davis & Leonardo Villar, 2004. "Real Macroeconomic Stability and the Capital Account in Chile and Colombia," Borradores de Economia 294, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:294
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    5. Ffrench-Davis, Ricardo & Larraín, Guillermo, 2003. "How optimal are the extremes?: Latin American exchange rate policies during the Asian crisis," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1797, December.
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    8. Ffrench-Davis, Ricardo & Ocampo, José Antonio, 2001. "The globalization of financial volatility: challenges for emerging economies," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1700, December.
    9. S Berg, 2001. "Trends In Racial Fiscal Incidence In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 69(2), pages 243-268, June.
    10. Ffrench-Davis, Ricardo & Larraín, Guillermo, 2003. "How optimal are the extremes?: Latin American exchange rate policies during the Asian crisis," Series Históricas 10, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
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    Cited by:

    1. Anoruo, Emmanuel & Ramchander, Sanjay & Thiewes, Harold, 2007. "Crisis, contagion and cross-border effects: Evidence from the Latin American closed-end fund market," Global Finance Journal, Elsevier, vol. 17(3), pages 403-418, March.
    2. Titelman Kardonsky, Daniel & Vera, Cecilia, 2009. "A summary of the experiences of Chile and Colombia with unremunerated reserve requirements on capital flows during the 1990's," Financiamiento para el Desarrollo 221, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    3. Rosa Evelia Sánchez, 2009. "Brief Review Of The Relationship Among Emigration, Poverty And Overseas Workers Remittances In Colombia," REVISTA DE ECONOMÍA Y ADMINISTRACIÓN, UNIVERSIDAD AUTÓNOMA DE OCCIDENTE, December.
    4. César TAMAYO y Andrés VARGAS, 2007. "Revisando la evidencia sobre frenazos súbitos y crisis financieras," ARCHIVOS DE ECONOMÍA 003948, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    5. Leonardo Villar & Pilar Esguerra, 2005. "Comercio Exterior Colombiano En El Siglo Xx," Borradores de Economia 358, Banco de la Republica de Colombia.
    6. Rozenwurcel, Guillermo & Machinea, José Luis, 2005. "Macroeconomic coordination in Latin America: does it have a future?," Series Históricas 15, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).

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