The international debt crisis and years of "capital starvation" in the 80s forced many heavily indebted countries to start relying on domestic savings. In Chile this policy continued into the 90s, despite the renewed and vast inflows of capital.

Chile's monetary authorities consistently refused to float the exchange rate as a quick "inflation fix", a move which would have resulted in a considerable appreciation of the currency. In fact, the very objective of Chile's exchange rate and currency policy was to prevent appreciation and avoid an excessive current account deficit. Owing to cautious monetary and fiscal policies, the fall in the competitiveness of Chilean exports (resulting from high inflation differentials against its main trade partners) was gradual and slow, and coupled with an equally slow rise in the propensity to import. Thus the economy was given time for the necessary adjustments. Additionally, the budget surpluses of 1990-1998 allowed for a relatively low interest rate.

The case of Chile exemplifies the importance of capital flow management. Chile was able to avoid a financial crisis because - among other factors - the government, relying on the sound fundamentals such as a healthy budget or high domestic savings and investment rates - conducted a diversified policy towards the incoming capital, discouraging a build-up of short-term debts. Very liberal FDI regulations attracted foreign investment on a scale which allowed for an almost complete financing of the current account deficit. Portfolio investment, however, was tracked separately and subject to much tighter control. Contrary to popular beliefs regarding the controllability of foreign investment, Chile proved effective at curbing short-term capital inflow by setting rules which were difficult to bend.