Formerly a favourite location for private capital inflows, Brazil was virtually cut off from further bank lending in the 1980s. The country's rating in secondary loan markets plummeted, and foreign direct investment dwindled. New external financing was replaced by an accumulation of interest...

Developing countries are constrained in financing current account deficits as real capital mobility is still far from perfect. At the same time, capital flows to these countries proved to be extremely volatile. The paper argues that the long-term problem of "too little" should not be confused...