Research Insights: Why Did Some Countries Suffer Sudden Stops in Capital Flows during the Pandemic While Others Did Not?
Despite the sharp contraction in portfolio flows in March 2020, only six of 22 Latin American and Caribbean countries analyzed suffered a sudden stop in net capital flows during the COVID crisis. Outflows were the main driver of these sudden stops, as residents decided to increase their savings abroad. In other cases, external borrowing was crucial to avoid sudden stops. Without sovereign debt issuance or multilateral lending, sudden stops would have been considerably more widespread. Strong fundamentals are critical to maintaining access to external sovereign debt markets. Countries that suffered sudden stops had weaker pre-crisis macroeconomic indicators.
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| Language: | English |
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Inter-American Development Bank
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| Subjects: | Coronavirus, Capital Flow, Sudden Stop, Financial Accountancy, Taxonomy, Economic Recession, Pandemic, Financial Crisis, External Debt, F30 - International Finance: General, F32 - Current Account Adjustment • Short-Term Capital Movements, F40 - Macroeconomic Aspects of International Trade and Finance: General, Gross and net capital flows;External accounts, |
| Online Access: | http://dx.doi.org/10.18235/0004318 https://publications.iadb.org/en/research-insights-why-did-some-countries-suffer-sudden-stops-capital-flows-during-pandemic-while |
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| Summary: | Despite the sharp contraction in portfolio flows in March 2020, only six of 22 Latin American and Caribbean countries analyzed suffered a sudden stop in net capital flows during the COVID crisis. Outflows were the main driver of these sudden stops, as residents decided to increase their savings abroad. In other cases, external borrowing was crucial to avoid sudden stops. Without sovereign debt issuance or multilateral lending, sudden stops would have been considerably more widespread. Strong fundamentals are critical to maintaining access to external sovereign debt markets. Countries that suffered sudden stops had weaker pre-crisis macroeconomic indicators. |
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