PDF DOWNLOAD

 

Capital flows and forex reserves: resilience = (reserves - short-term external debt)/GDP; macroprudential measures first. The paper proposes resilience measured as (foreign exchange reserves minus short-term external debt)/GDP, arguing that this captures reversible foreign exposures and better predicts vulnerability to sudden stops. It explains that reserves are ineffective without prior macroprudential measures or capital controls, which reduce fragile external liabilities; sequencing matters. Policy recommendations address the tradeoff between lower external funding costs and higher vulnerability, urging taxation or regulation to prevent arbitrage between foreign debt and portfolio inflows and advocating size, maturity and investor-mix limits to ration risky flows.