However, there are limits on debt flows. These are the least preferred, essentially because the domestic borrower is obliged to repay and bears the exchange rate risk. Within this category, long-term debt is preferred to short-term debt. External debt obligations can put enormous strain on the capital account if they are redeemed in the face of a global shock.
Putting some kind of limits on them reduces the vulnerability of the economy to this strain. Looking back over the crisis period, when outflows from equity investments were so large, it is easy to imagine that the pressure and the consequent impact on domestic markets would have been far more intense if debt obligations were also being redeemed at the same time.