THE REVOLVING-DOOR - EXTERNAL DEBT AND CAPITAL FLIGHT - A PHILIPPINE CASE-STUDY

In recent decades the private citizens of a number of Third World countries accumulated substantial external assets via "capital flight" at the same time their governments incurred large external debts. This paper proposes a classification of hypothetical linkages between capital flight and external debt disbursements, and examines the strength of these linkages in the Philippines during 1962-86. Econometric analysis and anecdotal evidence indicate that large sums of capital flowed into and out of the Philippines through a financial revolving door. On this basis I conclude that there is scope for political and legal challenges to the legitimacy of a substantial fraction of the country's external debt.