THE risk of an abrupt end to capital inflows is now a worry for much of the emerging world

James McKay

THE risk of an abrupt end to capital inflows is now a worry for much of the emerging world. Some places are more vulnerable than others. A large current-account gap implies lots of net borrowing from abroad, which could presage a credit crunch if funding dries up. A high level of short-term external debt relative to a government's stock of reserves means an economy lacks the means to tide borrowers through temporary difficulties. Rapid credit growth often signals overstretched firms and overvalued asset prices. A more open financial system may boost growth in the long run, but it also makes it easy for capital to flood out fast.(economist this week)


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