Is the debt crisis history? Recent private capital inflows to developing countries

The outlook for economic development for an important group of middle-income countries has once again been buoyed by substantial private capital inflows in the 1990s. As in the 1970s, this development has been met with cautious optimism. This empirical study finds that although debt reduction and policy reforms in debtor countries have been important determinants of renewed access to international capital markets, changes in international interest rates have been the dominant factor. We calculate the effects of changes in international interest rates for a ''typical'' debtor country. We conclude that increases in interest rates associated with a business cycle upturn in industrial countries could depress the secondary market prices of existing debt to levels inconsistent with continued capital inflows.