Abstract
The dramatic increase in private portfolio flows into emerging market countries at the beginning of the 1990s has received a lot of attention. Less well-known are the changes in cross-border bank lending to these countries. Net short-term bank flows to major emerging market countries averaged US$ 35 billion a year from 1993 to 1995, a more than 4-fold increase over the 1988–1990 period. Over the last two years, long-term bank lending to major emerging market countries also picked up vigorously after years of stagnation. This is shown in Figure 1, and one might be tempted to conclude that we are facing a renaissance in lending to developing countries. Today the volume of net bank lending to major borrower countries exceeds that of 1982, i.e. the year when such lending peaked and the so-called international debt crisis broke out. Even when measured in terms of lending as a percentage of GDP, cross-border lending is higher today than it was in 1982.1 Of course, this raises questions as to the sustainability of these flows and the efficiency of international lending. An initial question suggested by Figure 1 is whether history is repeating itself. Could it even be that the recent Mexican peso crisis was a forerunner of more general fragilities in the financial systems, similar to what we experienced at the beginning of the 1980s?
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