Research Insights: Why Did Some Countries Suffer Sudden Stops in Capital Flows during the Pandemic While Others Did Not?

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Jun 2022
Despite the sharp contraction in portfolio flows in March 2020, only six of 22 Latin American and Caribbean countries analyzed suffered a sudden stop in net capital flows during the COVID crisis. Outflows were the main driver of these sudden stops, as residents decided to increase their savings abroad. In other cases, external borrowing was crucial to avoid sudden stops. Without sovereign debt issuance or multilateral lending, sudden stops would have been considerably more widespread. Strong fundamentals are critical to maintaining access to external sovereign debt markets. Countries that suffered sudden stops had weaker pre-crisis macroeconomic indicators.