This new wave of capital flows was perceived as a positive global development. It
provided increased diversification opportunities to investors in developed
countries. Capital inflows also held the potential of augmenting domestic
investment, and hence economic growth in emerging economies that had until then
experienced years of tight external financing constraints. For Latin America, in
particular, the renewed access to international capital markets seemed to
signal an end to the ‘lost decade’ of the 1980s. At the same time, given the
experience of the early 1980s, many voiced concerns about the potential risks
of capital flows, especially short-term capital flows. Of particular concern was that,
as in the previous episode, capital flows could reverse abruptly and lead to
balance-of-payments crises. The Mexican peso crisis of 1994 validated some of
these concerns.