Volatile Capital Flows: Taming Their Impact on Latin America

The Inter-American Development Bank's conference on international capital flows in April 1995 was held as Latin America coped with the devaluation crisis that had erupted only months earlier in Mexico. This timely volume conveys the immediacy of the region's policy response as well as the longer-term lessons of how to manage large capital flows in a volatile economic environment.

Despite the recent crisis, the authors argue that economic liberalization remains a valid long-term strategy for the region. Renewed capital flows have been key to Latin America's economic recovery in the early 1990s. However, financial markets can be volatile, and the region's challenge is to find ways to protect itself against shocks. The book considers the extent to which countries should influence the composition of capital inflows, how they can adjust to less international capital without jeopardizing domestic needs, and whether international monetary cooperation should be strengthened to protect against future crises.

Contributors include Michael Bruno, Chief Economist of the World Bank; Domingo Cavallo, Minister of Finance of Argentina; Enrique Iglesias, President of the IDB,; Lawrence Summers, Undersecretary of the U.S. Treasury; and David Mulford, Chairman of CS First Boston.

Ricardo Hausmann is Chief Economist at the Inter-American Development Bank. Liliana Rojas-Suárez is Principal Adviser in the Office of the Chief Economist.