A combination of domestic and external factors contributed to the resurgence of
capital flows to developing countries in the late 1980s. The main domestic factors
were the initiation of the Brady plan for debt restructuring in 1989, and the
successful implementation of other structural reform programs in many
Latin American countries. The decline in US interest rates and the growth of
institutional investors worldwide in the early 1990s were the primary externalfactors. In addition to the surge in magnitude, there were also important changes in
composition of capital flows. While bank flows were dominant during the 1970s,
capital flows in this episode consisted mainly of foreign direct investment and
portfolio flows. Capital flows to Asia were primarily in the form of FDI, whereas
portfolio flows were more important in Latin America, accounting for over
60 per cent of total inflows. Further, much of the foreign borrowing during the
1970s was done by the public sector, while capital flows in the early 1990s were
primarily directed at the private sector