A serious warning signal has begun to flash in several Latin American economies (starting in Mexico, as with the 1982 debt crisis, and like then, spreading rapidly to the rest of the hemisphere). Instead of continuing to flow in, money is beginning to leave; instead of moving up, stock and bond markets are drifting downward. The felicitous reversal of fortune seen in recent years is fading.

From 1982 through the early 1990s, largely because of the now nearly forgotten debt crisis, Latin America was a net capital exporter. Absurdly, for a developing region of the world, it sent far more money abroad than the funds it received through loans, foreign investment and repatriated flight capital. Latin America was financing the industrialized world with its deficient savings, instead of the other way around.

Then, just a few years back, interest rates began to fall, foreign debts were renegotiated and macro-economic reforms took hold. Trade openings, privatizations and ensuing lower inflation made the hemisphere's finances more alluring. Money began pouring in. Countries like Mexico, Argentina, Venezuela (spectacularly) and Colombia and Chile (more consistently) received huge sums of foreign investment and private lending. Their stock exchanges boomed, the state-owned companies they placed on the auction block fetched fantastic amounts of cash and privately owned firms were borrowing again at reasonable rates on the international markets. Latin America re-established itself as a capital-importing region and its economies began to grow, albeit slowly.

Several explanations were proffered for fascination with the area's so-called emerging markets. The newly achieved reforms--exchange-rate stability plus sound public finances--initially were given credit. That explanation was soon found wanting. As much money was flowing into Brazil, where the currency was devalued daily and inflation was above 50% monthly, as into Argentina, which had virtually eliminated inflation and practically adopted the U.S. dollar as its currency. Brazil, the presumed economic basket case, has been growing at five times the rate of Mexico, the supposed head of the class, and its foreign reserves are almost exactly twice Mexico's. Successful privatizations were also brandished as a reason for the boom, but again, counter-examples complicated matters. Mexico, for instance, received inflows well after its privatization program had ended.