ABSTRACT
In the previous chapter an important concept was introduced. This involves the relationship between the current account and the financial account. Over a period of time such as a year, these two accounts should be equal in magnitude and opposite in sign. Another way of putting this is that the total amount of inflows into a country should match the total amount of outflows. If a country has a current account deficit, it should have a financial account surplus. The reverse is true: a current account surplus should be matched by a financial account deficit. In the modern history of Latin America the former has been much more common than the latter. Until recently, ISI combined with overvalued exchange rates tended to create a high demand for imports coupled with difficulties in exporting goods other than commodities. This has obvious implications for the financial account. The current account deficits in the region created a relentless need for inflows into the financial account. The purpose of this chapter is to illustrate how countries at the level of economic development of Latin America usually accomplish this.
