Also, little has been done to discourage financial inflows due to memories of the need to raise foreign capital to finance national debt. In fact, net financial inflows went from 16 per cent of GDP in 1995 to practically zero in 1996 because the government used its significant share of total inflows to pay off the large outstanding debt incurred during Hungary's communist past. Financial inflows, mainly as foreign direct investment, remain stable to the private sector of the economy. Financial inflows have positive implications and outflows have negative implications for economic development from the point of view of catching up with developed market economies and establishing a base for long term economic growth. There is little consensus that emerging economies should resist financial inflows.
Financial inflows can have destabilizing short term effects.
However, the reasons for this have to be carefully analyzed. If inflows are responding to market failures or weak banking, these weaknesses have to be remedied, rather than applying other costly treatments. Rules of bank supervision, for instance, have to be more stringent in transition economies than in mature market economies. Although Latin American and Asian experiences are useful to compare, one should not forget that Eastern European countries operate with less developed financial markets and banking systems. The Institute's research focuses on sustainability and the human dimensions of global change.