Private Capital Inflows and the Role of Economic Fundamentals

Private capital flows returned to the developing countries in the late 1980s, only a few years after the debt crisis. Underlying this surge in inflows there is a decrease in interest rates and a slowdown in economic activity in the developed countries, and an improvement in economic prospects and creditworthiness in the recipient countries. The latter is due, in part, to the implementation of structural reforms comprising the deregulation of financial and labor markets, the dismantling of barriers to trade, and the reduction of restrictions on capital movements.