Financial Crises in Emerging Markets

This book grapples with the trend towards financial globalization and its impact on financial fragility. Does globalization entail greater financial market instability—perhaps even genuine systemic fragility—or lead to a smoother working of markets? How should governments, central banks, and international institutions respond to financial fragility? Alexandre Lamfalussy analyses four major crises in emerging markets: Latin America in 1982–83, Mexico in 1994–95, East Asia in 1997–98, and Russia since 1998. The author finds that the build up of short-term indebtedness and asset price bubbles were at the heart of the four crises. And the exuberant behaviour of lenders and investors from the developed world played a major role, while financial globalization was an aggravating factor. Yet if globalization has made the financial systems of the developed world more or less fragile remains an open question. Lamfalussy tenders no simplistic prescriptions in this book; instead he offers carefully considered policy recommendations that are both pragmatic and wise.