Current Account Deficits and Capital Flows in East Asia and Latin America : Are the Nineties Different from the Early Eighties?

A number of East Asian and Latin American countries have beeen the recipients of a large portion of total international capital flows to developing countries, both in the late seventies/early eighties and in the early nineties. These inflows have financed persistent current account imbalances, as well as the accumulation of foreign exchange reserves. A number of recent studies have focused on potential early warning indicators in predicting exchange rate, financial and balance-of-payments crises. This chapter contributes to this literature by examining the sustainability of current account deficits in three East Asian countries, Korea, Malaysia and Thailand, and three Latin American countries, Chile, Colombia and Mexico, in the early 1980s and in the 1990s.