Foreign capital inflows and macroeconomic policies

In recent years, a number of countries of the region have gained renewed access to international financial markets, thus passing abruptly from a situation of relative scarcity of external resources to one of abundance. This situation has given rise to considerable pressures on certain key variables of their economies, especially the real exchange rate and interest rates. In previous articles in CEPAL Review, the effects of opening-up of the capital account on monetary, exchange rate and stabilization policies have been analysed. The present article considers the dilemma faced by the economic authorities when they try to simultaneously achieve ongoing capital inflows, stability of the economic aggregates, a competitive exchange rate, and a stronger savings and investment process. An analysis is made of the experiences of Argentina, Chile, Colombia and Mexico in this respect, with their economic policy profiles distinguished according to three alternative options for intervention: in the foreign exchange market, in the monetary market, and in the capital market. It is argued that in view of the degree of volatility and uncertainty of external capital flows, policy instruments in these areas should be aimed at obviating the diversion of key prices from their medium- and long-term trends in response to short-term forces.