Financial Fragility and Neoliberalism in Developing Countries Andrés Blancas• Abstract The aim of this paper is to show the financial fragility dynamics in developing countries following the last theoretical advances. As an empirical application we prove that the Mexican economy has been characterized by financial fragility, mainly during the crisis terms. Financial fragility has created difficult problems for policy makers; in trying to fix it by restricted monetary and fiscal policies, they have triggered the generalized financial crises. Whereby, financial fragility can be diagnosed as an structural problem of developing countries like Mexico and a real potential risk of generalized economic crisis in the process of economic liberalization nowadays. Key Words: Economic dynamics, financial fragility, developing countries, financial crisis, monetary policy and Mexican economy JEL Classification: C61, E44, E58, F34, O5 1 Introduction The 1990s financial crises in developing and newly industrializing countries exemplify the risk of financial volatility and economic instability that has accompanied the economic liberalization and the deregulation of financial markets. For these countries, particularly in Asia and Latin America, the first part of the 1990s was distinguished by hopeful and cheerful • Institute of Economic Research, UNAM. 2007 E-mail address:
[email protected]. Telephone number: (525)55623-0125, FAX number: (525)55623-0199. Helpful comments and suggestions from Duncan Foley and Lance Taylor, as well as research assistance from Jaime Blancas are gratefully acknowledged. 2 economic growth. However, the crises made irruption in Mexico (1994-1995), Asia (1997- 1998), Russia, Brazil, and several other Latin American countries (1998-1999), and Argentina (2001-2002). These kinds of crises showed that there was something wrong in the so-called “emergent economies” under the new “market friendliness” environment.