Macroeconomic Management in APEC Economies: The Response to Capital Inflows

In recent years, there has been a surge of international capital flows to many Asian countries. During 1990-93, developing economies in Asia received a net capital inflow of $151 billion, more than double the amount recorded for the previous four years. For certain Asian countries, such as Malaysia and Thailand, these inflows have amounted to as much as 15 percent of GDP. These developments represent a major turning point from the previous decade, when, because of the debt crisis, little capital flowed to most developing countries. This change is not limited to only a few countries. The number of economies in Asia experiencing a surge in capital inflows has recently expanded; among the more recent recipients of capital inflows are India, Nepal, and Sri Lanka. Other regions, in particular, Latin America and the Middle East, have also been attracting large amounts of foreign capital. While issues pertaining to the management of international debt dominated the policy discussions of the 1980s, the design of effective economic policies for dealing with these capital inflows, and for ensuring their durability, has become a key economic policy issue in recent years.