Expanding economic activities contributed significantly to the widening current account deficit, the worsening terms of trade exacerbated the external stability problems.
The problem of overinvestment, especially in non-traded sector such as commercial, residential, construction, and services sectors, was further compounded by a deteriorating ICOR from 3.1 in 1989 to 8.1 in 1996, reflecting declining efficiency and profitability of investment.
The larger current account gaps and the implied financing requirements together with the large stock of debts raised the question of sustainability of the current. This issue came under close market scrutiny in the wake of earlier events in Mexico, and eventually led to the withdrawals of short-term capital, as well as portfolio investments.