Persistent Current Account Deficits: A Warning Signal?

When should persistent current account deficits be of concern to policymakers? We address this question by developing a framework for analysing current account sustainability, that explicitly takes into account willingness to pay and willingness to lend in addition to intertemporal solvency. This framework helps understand a variety of country experiences with protracted current account imbalances. We identify a number of sustainability indicators related to the structure of the economy, the economic policy stance, and political economy factors, and use them to evaluate the experience of countries that suffered external crises and of others that avoided them. Copyright @ 1996 by John Wiley & Sons, Ltd. All rights reserved.