1980’s: Local Conditions
Budget Deficits increased vastly
Exchange Rates overvaluation
- avoid exchange depreciation or fixing exchange rate
- real appreciation led to a current account deterioration
- availability of credit made policy errors possible
Capital Flight
- inflation/exchange rate risk foreign currency
- political risk shift assets out of the country
- tax reasons
Ways to do it
- Central Bank allows transfers abroad at official exchange rate
- Misinvoicing trade transactions (over import-under export)