Seasonal disequilibrium (variation in import
and export activities, natural disasters, labor strikes, etc.)
Cyclical disequilibrium (more serious, due
to changes in income and production)
Structural disequilibrium (more lengthy, strikes
at the heart of economic policies, could be sue to a sudden shift in prices
of major international commodities)
Speculative disequilibrium ( result of short-term
capital movement)
Methods to Correct disequilibrium in BOP
Internally
Changes in exchange rate
Changes in income policy
Qualitative and quantitative restrictions on imports
Externally
Other government's intervention
Help from the IMF
Relief from foreign banks
The BOP and economic crises: Latin America
late 1980's, debt crisis
worldwide economic recession
consequences: loss of capital and devaluation of currencies
solution: IMF intervention (lender, negotiator), restructuring,
and economic sacrifices
The BOP and economic crises: the Mexican Peso devaluation
and the Tequila effect
indirect consequence of NAFTA (1992)
massive financial inflows in early 1990's
increasing current account deficit
devaluation of the Peso led to flight of capital from
Mexico and other Latin American nations (Tequila effect)
The BOP and economic crises: the Asian crisis
current account deficits
excessive foreign borrowing
depreciation and devaluation of currencies
Baht (value for 1 US dollar)
Won (value for 1 US dollar)
June 1997
26
890
December 1997
55
2000
June 1998
42
1400
loss of market confidence
weak financial systems
lack of transparency about the ties between government,
business, and banks
grave consequences on other nations' economic performance,
especially local partners (Japanese slowdown)
Handouts: IMF Statistical Appendices:
Advanced Economies: Balance of Payments on
Current Account
Advanced Economies: Current Account Transactions
Summary of Payments Balances on Current Account
Summary of Balance of Payments, Capital Flows,
and External Financing