The Structure of Foreign Funding and Critical Deficit in the Economy of Emerging Countries

Abstract

The are some minimal surpluses of international financial flows (on the capital and reserve account) that are needed to support critical payment deficit at the previous level in the next period. If the amount of critical deficits is in excess over the total accessible surplus of international capital flows, it inevitably leads to a violent and forced correction of the current account and serious disturbances of the growth process. The breakdown of financing of payment deficit in emerging economies, partly may result from weaknesses of operations of regulating institutions that do not have sufficient influence on behaviours and attitudes of subjects participating in foreign capital turnovers. It requires however an appropriate recognition of the strength and nature of the reaction and behaviours of national subjects interacting with a strategy of domestic regulatory institutions.