Capital Flowing Out of Developing Countries

From Nouriel Roubini’s RGE Monitor:

The reversal of capital inflows due to deleveraging or losses in financial markets has been one of the most significant effects of the financial crisis on emerging and frontier economies. After a period in 2007 and 2008 when many emerging markets faced the problem of dealing with extensive capital inflows, now capital flows have reversed. Private capital flows in 2009 are expected to be less than half of their 2007 levels, posing pressure on emerging market currencies, asset markets and economies. Countries that relied on readily available capital to finance their current account deficits are particularly vulnerable. Furthermore, capital outflows pose the risk that governments may react with some type of capital controls or barriers to the exit of foreign investments.

Note that the piece later adopts a different tone on capital controls, accepting their use on a temporary basis and noting that Iceland, Ukraine, Argentina, Indonesia and Russia, among others, have already adopted them.

Read the whole analysis here.