Global Governance and Financial Crises

By Meghnad Desai; Yahia Said | Go to book overview

Notes
1
In December 2001, of course, Argentina also had a major financial crisis, which by the middle of 2002 was threatening to become the worst financial crisis in the Third World in living memory. This crisis is the subject of a separate paper (see Palma, 2003). Of the three paths to financial crisis discussed in this chapter, the Argentinean one is closer to that of Mexico.
2
Among the large literature on the role of 'moral hazards' in financial crises, probably the best exposition is that of McKinnon and Pill (1997). Literature related to most of these issues can be found at http://www.stern.nyu.edu/∼nroubini/asia/AsiaHomepage.html
3
For the Colombian experience, see especially Ocampo and Tovar (1999), and Ocampo (2000).
4
Of course, one has to remember that it is not really all 'foreign'; in some cases domestic capital leaves only to return again as 'foreign', to enjoy benefits!
5
A related problem is that the LDC-exposure of these institutional investors was proportionally so small, that often they (wrongly) believed that it did not pay to invest properly in information about these LDCs; so, normal problems of 'asymmetric' information were exacerbated.
6
For the extraordinary case of the LTCM, described by the Washington Post as 'the biggest financial misstep ever to hit Wall Street', or by the Financial Times as 'the fund that thought it was too smart to fail', see especially Dunbar (2000). The Wall Street Journal, which sometime likes to play the role of the Pravda of the US financial markets, had more affectionate words to describe this institution; according to them, it was only 'one of [Wall Street] most aggressive offspring'.
7
See Palma (1998).
8
For detailed data in this respect, see Palma (1999a).
9
Brazil's Finance Minister, Pedro Malan, tells us with disarming candour how one of the aims of economic policy was precisely 'artificially' to create the need for foreign capital via the appreciation of the exchange rates: according to him 'The logic of the exchange rate policy is to […] increase imports and the current account deficit and, therefore, make the country import capital again' (statement made on the 24 October, 1994, quote in Saad Filho, 2000, p. 15).
10
In order to cover all four major financial crises of the last twenty years, events leading to the Chilean 1982 financial crisis are also included in the graphs of this section, even though the Chilean case clearly belongs to (the Mexican-type) 'route 1'. Finally, the important cases of Malaysia and Thailand, as they are a combination of 'route 1' and 'route 2', will not be included in the graphs, but will be discussed throughout this section.
11
This, of course, is not a new phenomenon; the most insightful work on this matter is that of Kindleberger (see especially 1996).
12
For a more detailed analysis of this issue, see Palma (1998).
13
See, for example, Perez (2002).
14
Galbraith is also another exception; see, for example (2000).
15
This is sometimes called the 'Lawson law', following the British Chancellor's famous statement that when imbalances are the result of private transactions, no matter how large they are, governments should not intervene.
16
See Palma (2001a).
17
See McKinnon and Pill (1997); for a critique of this position see Palma (1999b).
18
Argentina is included in this graph just to reinforce the point of the extraordinary increase in imports of consumer goods in non-Brazil Latin America, following their processes of trade and financial liberalisation.
19
See Palma (2001b).
20
For a more detailed analysis of this phenomenon, see Palma (1995 and 1998).
21
See this source for countries included in each series.

-153-

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Global Governance and Financial Crises
Table of contents

Table of contents

  • Title Page v
  • Contents vii
  • Figures viii
  • Tables x
  • 1 - Introduction 1
  • 2 - Financial Crises and Global Governance 6
  • 3 - Asset Price Bubbles and Monetary Policy 19
  • 4 - The International Monetary Fund 43
  • Bibliography 68
  • 5 - Regulating Global Finance 70
  • 6 - Crises, Recovery and Reforms in East Asia 83
  • 7 - Mexico, Korea and Brazil 120
  • Notes 153
  • Index 159
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