Political Risk After the Asian Financial Crisis: A Proposal to Consider the Significance of Uneven Political and Economic Transformation

The dramatic growth of international capital flows was one of the most remarkable and far-reaching economic phenomena of the late twentieth century. In less than a decade, net capital flows to emerging countries quadrupled — from $50 billion in 1987 to over $200 billion in 1996. The financial crises which swept through Latin America and Asia in the last decade of the century led, however, to reversals of these capital flows — portfolio and banking flows in particular — away from developing countries in these regions. Net capital flows to emerging countries dropped to $148 billion in 1997 and further to $66 billion in 1998, but they are projected to rebound in 2000 (IMF, 1999) (see Tables 17.1 and 17.2). In the longer term, capital flows to developing countries are likely to increase. As the twenty-first century begins, Third World nations will continue to seek foreign investment for their development needs, and financial institutions in rich nations will continue to look for opportunities to diversify their portfolios.