However, when the borrower can no longer roll over its debt, and funds begin to flow outwards, the borrower quickly faces severe liquidity problems. The Asian crises showed us that the disruptions in the economies and financial markets in these circumstances could be very serious.
In a number of cases, they could be far more serious than adjustments that would have been warranted to correct the macroeconomic imbalances that existed before the crisis. In this context, while the merits of capital inflows should also be fully recognized, the volatility of short term capital flows is an important issue in dealing with international financial crises.