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Abstract
The evolution of capital account liberalization has varied across developing countries, reflecting, among other things, their differing degrees of macroeconomic imbalance and balance of payments strength and the extent of general economic liberalization. Prior to the mid-1980s, liberalization of capital account transactions was almost always undertaken from a relatively strong balance of payments position (Indonesia,45 Malaysia, and Singapore), but more recently a number of developing countries have adopted full convertibility following balance of payments deficits (Mauritius and Trinidad and Tobago), including in some cases large external payments arrears (in a number of Latin American and Caribbean countries). In the Baltic countries, where the elimination of capital controls followed the breakup of the former U.S.S.R., the balance of payments was in surplus owing in part to large reserve-related transfers. Current account positions tended to be less problematic; where countries experienced current account deficits in the period leading up to liberalization, with a few exceptions (Costa Rica, The Gambia, and Jamaica) the deficits were relatively small, usually well below 5 percent of GDP.
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