DOCSLIB.ORG

The Episodes of Currency Crisis in Latin American and Asian Economies

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
The Episodes of Currency Crisis in Latin American and Asian Economies Marek D¹browski (ed.) The Episodes of Currency Crisis in Latin American and Asian Economies W a r s a w , 20 0 1 No. 39 The views and opinions expressed in this publication reflect Authors’ point of view and not necessarily those of CASE. This paper was prepared for the research project No. 0144/H02/99/17 entitled "Analiza przyczyn i przebiegu kryzysów walutowych w krajach Azji, Ameryki £aciñskiej i Europy Œrodkowo-Wschodniej: wnioski dla Polski i innych krajów transformuj¹cych siê" (Analysis of the Causes and Progress of Currency Crises in Asian, Latin American and CEE Countries: Conclusions for Poland and Other Transi- tion Countries) financed by the State Committee for Scien- tific Research (KBN) in the years 1999–2001. The publication was financed by Rabobank SA Key words: currency crisis, financial crisis, Asian economies Argentina, Mexico,Thailand, Indonesia, South Korea, Malaysia DTP: CeDeWu Sp. z o.o. Graphic Design – Agnieszka Natalia Bury © CASE – Center for Social and Economic Research, Warsaw 2001 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, without prior permission in writing from the author and the CASE Foundation. ISSN 1506-1647 ISBN 83-7178-257-8 Publisher: CASE – Center for Social and Economic Research ul. Sienkiewicza 12, 00-944 Warsaw, Poland e-mail: [email protected] http://www.case.com.pl The Episodes of Currency Crisis in Latin... Contents Introduction by Marek D¹browski . .7 Part I. The Mexican Peso Crisis 1994–1995 by Wojciech Paczyñski . .9 1.1. History of the Crisis . .9 1.2. In Search of the Causes of the Crisis: Macroeconomic Factors . .11 1.2.1. Fiscal Policy . .11 1.2.2. Savings and Investment Balance . .11 1.2.3. Private and Public Debt . .12 1.2.4. Exchange Rate Policy . .14 1.2.5. Monetary Policy . .15 1.2.6. Foreign Trade . .16 1.2.7. Balance of Payments . .16 1.3. In Search of the Causes of the Crisis: Microeconomic Factors . .17 1.4. Political Situation . .17 1.5. Crisis Management . .18 1.6. Conclusions . .19 Appendix: Chronology of the Mexican Crisis . .20 References . .21 Part II. The 1995 Currency Crisis in Argentina by Ma³gorzata Jakubiak . .23 2.1. Introduction . .23 2.2. Overview of Economic Situation Before and During the Crisis . .23 2.2.1. Reforms of the Early 1990s and Crisis Developments . .23 2.2.2. Monetary and Exchange Rate Policy . .24 2.2.3. Fiscal Policy . .25 2.2.4. Private and Public Debt . .25 2.2.5. Savings and Investment . .26 2.2.6. Foreign Trade . .27 2.2.7. Balance of Payments . .27 2.2.8. Real and Nominal Rigidities . .29 2.2.9. Banking System . .29 2.2.10. Domestic Financial Market . .31 2.1.11. Private and Public Sector . .32 2.3. Political Situation and Management of the Crisis . .32 2.4. Post-Crisis Developments . .34 2.5. Conclusions . .35 Appendix: Chronology of the Argentinian Crisis . .36 References . .37 Data Sources . .37 CASE Reports No. 39 3 Marek D¹browski (ed.) Part III. The 1997 Currency Crisis in Thailand by Ma³gorzata Antczak . .39 3..1. Introduction . .39 3.2. The Way to the Crisis . .39 3.2.1. Macroeconoomic Signs of Vulnerability . .41 3.2.2. Microeconoomic Signs of Vulnerability . .42 3.3. The Crisis . .44 3.3.1. Managing the Crisis. The IMF Intervention in Thailand . .44 3.3.2. Macroeconomic Environment after the Crisis . .45 3.4. Conclusions . .47 Appendix: Chronology of the Thailand's Currency Crisis . .52 References . .54 Part IV. The Malaysian Currency Crisis, 1997–1998 by Marcin Sasin . .55 4.1. Overview . .55 4.1.1. Introduction . .55 4.1.2. The Public Sector . .56 4.1.3. Monetary Policy and the Financial Sector . .58 4.1.4. The Corporate Sector . .61 4.1.5. The External Sector . .62 4.2. The Crisis . ..
Load more

Recommended publications
  • Policy Response to Crises in Latin America
    NBER WORKING PAPER SERIES THE ROAD TO REDEMPTION: POLICY RESPONSE TO CRISES IN LATIN AMERICA Carlos A. Vegh Guillermo Vuletin Working Paper 20675 http://www.nber.org/papers/w20675 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 November 2014 Paper prepared for the 2013 IMF Annual Research Conference in honor of Stanley Fischer's 70th birthday. We are extremely grateful to Julia Ruiz Pozuelo and Collin Rabe for research assistance. On a personal note, Vegh owes a huge debt of gratitude to Stan for 20 years of unwavering mentorship, co-authorship, and support (dating back to Stan's arrival at the IMF in September 1994). Stan is one of those rare individuals who combines truly remarkable professional credentials with equally astounding personal qualities. Our profuse thanks to Vittorio Corbo as well as to two referees and the editors of this Journal for extremely helpful comments and suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2014 by Carlos A. Vegh and Guillermo Vuletin. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. The Road to Redemption: Policy Response to Crises in Latin America Carlos A. Vegh and Guillermo Vuletin NBER Working Paper No.
    [Show full text]
  • The Making of a Crisis in Mexico: an Inductive Analysis of Media
    The Making of a Crisis in Mexico: An Inductive Analysis of Media Sentiment and Information Cascades on the Value of the Mexican Peso during the 2008 Global Financial Crisis By ©2014 Lisa M. Vachalek Submitted to the Department of Latin American & Caribbean Studies and the Graduate Faculty of the University of Kansas in partial fulfillment of the requirements for the degree of Master of Arts. Chairperson: ________________________________ Dr. Melissa H. Birch Committee Members: ________________________________ Dr. Elizabeth Kuznesof ________________________________ Dr. Brent E. Metz Date Defended: 4/22/14 The Thesis Committee for Lisa M. Vachalek certifies that this is the approved version of the following thesis: The Making of a Crisis in Mexico: An Inductive Analysis of Media Sentiment and Information Cascades on the Value of the Mexican Peso during the 2008 Global Financial Crisis Chairperson: ________________________________ Dr. Melissa H. Birch Date approved: 6/10/14 ii Abstract In the two decades prior to the 2008 financial crisis, the Mexican government pursued policies aimed at liberalizing markets, while simultaneously trying to ensure the stability of the peso. These policies consisted of monetary and fiscal controls to keep inflation low and free trade agreements to reduce Mexico’s dependence on the United States. The policies significantly reduced the country’s public deficit and were implemented in hopes that they would help reduce the country’s exposure to currency crises. Yet, despite all provisions the Mexican government put in place, the country’s peso still lost two percent of its value in the first three days following the bankruptcy of Lehman Brothers, the US-based investment firm.
    [Show full text]
  • Financial and Real Markets Pull Each Other Down; How Can Policy Reverse This?
    SCHWARTZ CENTER FOR ECONOMIC POLICY ANALYSIS THE NEW SCHOOL WORKING PAPER 2009-10 After Hubris, Smoke and Mirrors, the Downward Spiral: Financial and Real Markets Pull Each Other Down; How Can Policy Reverse This? Edward Nell and Willi Semmler Schwartz Center for Economic Policy Analysis Department of Economics The New School for Social Research 6 East 16th Street, New York, NY 10003 www.economicpolicyresearch.org Suggested Citation: Nell, Edward and Semmler, Willi. (2009) “After Hubris, Smoke and Mirrors, MAY the Downward Spiral: Financial and Real Markets Pull Each Other Down; How Can Policy Reverse This?” Schwartz Center for Economic Policy Analysis and Department of Economics, 2009 The New School for Social Research, Working Paper Series. 2 Constellations Volume 16, Number 2, 2009 AFTER HUBRIS, SMOKE AND MIRRORS, THE DOWNWARD SPIRAL: Financial and real markets pull each other down; how can policy reverse this? Edward Nell and Willi Semmler 1. Introduction Starting in the 1980s, the liberalization of capital markets intensified under the influence of largely conservative governments. But the conservatives were not alone; political liberals tended to agree with the general push for deregulation. A new consensus formed, hailing the magic of markets.i The Clinton Administration was cautious, but tended to agree, at least up to a point. Bush II pushed deregulation and market worship to new heights. Yet right from the beginning, many countries fell into major episodes of financial instability, as boom and bust cycles blossomed, taking a devastating toll on economic activity. There was the Latin American debt crisis of the 1980s, the US Crash of 1987, the Japanese real estate and stock market crisis (and trap) in the 1990s, the British Housing crash in 1991, the Mexican Peso Crisis of 1994, the long-running Russian crisis of the mid-90s, the Asian Crisis of 1997/8, the High Tech Crash in the US Stock Market in 2000, and the Argentinian Crisis in 2002 among many others, large and small.
    [Show full text]
  • The Mexican Peso Crisis.” Photocopy
    TT he Mexican Peso Crisis Joseph A. Whitt, Jr. n the early 1990s the Mexican economy seemed healthy. It was grow- ing again after the “lost decade” of the 1980s, when the 1982 debt cri- sis and the 1986 collapse of oil prices sent the economy reeling. Moreover, inflation was being reduced substantially, foreign investors were pumping money into the country, and the central bank had accu- Imulated billions of dollars in reserves. Capping the favorable developments was the proposal to reduce trade barriers with Mexico’s largest trade partner, the United States, through the North American Free Trade Agreement (NAFTA). The agreement eventually took effect at the beginning of 1994. The hard times of the 1980s seemed to be history. Less than twelve months after NAFTA took effect, Mexico faced eco- nomic disaster. On December 20, 1994, the Mexican government devalued the peso. The financial crisis that followed cut the peso’s value in half, sent inflation soaring, and set off a severe recession in Mexico. What went wrong? After reviewing the events leading up to the devalua- tion, this article examines whether Mexican policy mistakes made devalua- The author is an economist tion inevitable. The discussion then considers Mexico’s policy actions in the macropolicy section during 1994, along with options Mexico did not take. The final section re- of the Atlanta Fed’s views market response to the devaluation and Mexican and U.S. government research department. efforts to cope with its aftermath. Federal Reserve Bank of Atlanta Economic Review 1 In equation (1), the symbol ^ over the variables denotes Mexico’s Wild Year of 1994 percentage changes.
    [Show full text]
  • How Can the Crisis Vulnerability of Emerging Economies Be Reduced?
    F65-22-5-2014_F65.qxd 23.05.2014 11:00 Seite 1 65 ifo Forschungsberichte How Can the Crisis Vulnerability of Emerging Economies Be Reduced? Klaus Abberger Biswa Nath Bhattacharyay Chang Woon Nam Gernot Nerb Siegfried Schoenherr Institute Leibniz Institute for Economic Research at the University of Munich Ifo Center for International Institutional Comparisons and Migration Research How Can the Crisis Vulnerability of Emerging Economies Be Reduced? Klaus Abberger Biswa Nath Bhattacharyay Chang Woon Nam Gernot Nerb Siegfried Schoenherr May 2014 Institute Leibniz Institute for Economic Research at the University of Munich Ifo Center for International Institutional Comparisons and Migration Research Bibliografische Information der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.d-nb.de abrufbar ISBN 978-3-88512-553-2 Alle Rechte, insbesondere das der Übersetzung in fremde Sprachen, vorbehalten. Ohne ausdrückliche Genehmigung des Verlags ist es auch nicht gestattet, dieses Buch oder Teile daraus auf photomechanischem Wege (Photokopie, Mikrokopie) oder auf andere Art zu vervielfältigen. © ifo Institut, München 2014 Druck: ifo Institut, München ifo Institut im Internet: http://www.cesifo-group.de List of Content 1. Research Questions and Report Structure ..................................................................... 6 2. Typologies for Different Economic Crises and Relevance for Emerging Countries
    [Show full text]
  • The Giant Sucking Sound: Did NAFTA Devour the Mexican Peso?
    J ULY /AUGUST 1996 Christopher J. Neely is a research economist at the Federal Reserve Bank of St. Louis. Kent A. Koch provided research assistance. This article examines the relationship The Giant between NAFTA and the peso crisis of December 1994. First, the provisions of Sucking Sound: NAFTA are reviewed, and then the links between NAFTA and the peso crisis are Did NAFTA examined. Despite a blizzard of innuendo and intimation that there was an obvious Devour the link between the passage of NAFTA and Mexican Peso? the peso devaluation, NAFTA’s critics have not been clear as to what the link actually was. Examination of their argu- Christopher J. Neely ments and economic theory suggests two possibilities: that NAFTA caused the Mex- t the end of 1993 Mexico was touted ican authorities to manipulate and prop as a model for developing countries. up the value of the peso for political rea- A Five years of prudent fiscal and mone- sons or that NAFTA’s implementation tary policy had dramatically lowered its caused capital flows that brought the budget deficit and inflation rate and the peso down. Each hypothesis is investi- government had privatized many enter- gated in turn. prises that were formerly state-owned. To culminate this progress, Mexico was preparing to enter into the North American NAFTA Free Trade Agreement (NAFTA) with NAFTA grew out of the U.S.–Canadian Canada and the United States. But less than Free Trade Agreement of 1988.1 It was a year later, in December 1994, investors signed by Mexico, Canada, and the United sold their peso assets, the value of the Mex- States on December 17, 1992.
    [Show full text]
  • Causes and Lessons of the Mexican Peso Crisis
    Causes and Lessons of the Mexican Peso Crisis Stephany Griffith-Jones IDS, University of Sussex May 1997 This study has been prepared within the UNU/WIDER project on Short- Term Capital Movements and Balance of Payments Crises, which is co- directed by Dr Stephany Griffith-Jones, Fellow, IDS, University of Sussex; Dr Manuel F. Montes, Senior Research Fellow, UNU/WIDER; and Dr Anwar Nasution, Consultant, Center for Policy and Implementation Studies, Indonesia. UNU/WIDER gratefully acknowledges the financial contribution to the project by the Government of Sweden (Swedish International Development Cooperation Agency - Sida). CONTENTS List of tables and charts iv Acknowledgements v Abstract vi I Introduction 1 II The apparently golden years, 1988 to early 1994 6 III February - December 1994: The clouds darken 15 IV The massive financial crisis explodes 24 V Conclusions and policy implications 31 Bibliography 35 iii LIST OF TABLES AND CHARTS Table 1 Composition (%) of Mexican and other countries' capital inflows, 1990-93 8 Table 2 Mexico: Summary capital accounts, 1988-94 10 Table 3 Mexico: Non-resident investments in Mexican government securities, 1991-95 21 Table 4 Mexico: Quarterly capital account, 1993 - first quarter 1995 (in millions of US dollars) 22 Table 5 Mexican stock exchange (BMV), 1989-1995 27 Chart 1 Mexico: Real effective exchange rate (1980=100) 7 Chart 2 Current account balance (% of GDP) 11 Chart 3 Saving-investment gap and current account 12 Chart 4 Stock of net international reserves in 1994 (in millions of US dollars) 17 Chart 5 Mexico: Central bank sterilised intervention 18 Chart 6 Mexican exchange rate changes within the exchange rate band (November 1991 through mid-December 1994) 19 Chart 7 Mexican international reserves and Tesobonos outstanding 20 iv ACKNOWLEDGEMENTS I would like to thank UNU/WIDER for financial support for this research which also draws on work funded by SIDA and CEPAL.
    [Show full text]
  • Understanding Economic Crises in Latin America
    University of New Hampshire University of New Hampshire Scholars' Repository Honors Theses and Capstones Student Scholarship Spring 2020 Causes of Chaos: Understanding Economic Crises in Latin America Kevin Murphy University of New Hampshire, Durham Follow this and additional works at: https://scholars.unh.edu/honors Part of the Business Commons Recommended Citation Murphy, Kevin, "Causes of Chaos: Understanding Economic Crises in Latin America" (2020). Honors Theses and Capstones. 512. https://scholars.unh.edu/honors/512 This Senior Honors Thesis is brought to you for free and open access by the Student Scholarship at University of New Hampshire Scholars' Repository. It has been accepted for inclusion in Honors Theses and Capstones by an authorized administrator of University of New Hampshire Scholars' Repository. For more information, please contact [email protected]. Causes of Chaos 1 Causes of Chaos: Understanding Economic Crises in Latin America Kevin Murphy Prof. Ahmad Etebari Causes of Chaos 2 Abstract I. This paper is an attempt at identifying the causes and commonalities of financial crises in Latin America over the past fifty years. This identification is carried out through an extensive review and analysis of the literature on causes of twelve major financial crises spanning over six major nations in Latin America. In addition, we conduct a Logit Binary Regression on commodity, interest rate and currency indexes to determine how closely related shifts in prices of the underlying asset are to times of financial crises. Through the literature review, we find the following major commonalities among the Latin American financial crises: over-dependence on commodities, poor macro and currency policies and overall political instability.
    [Show full text]
  • Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Monras, Joan Working Paper Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis IZA Discussion Papers, No. 8924 Provided in Cooperation with: IZA – Institute of Labor Economics Suggested Citation: Monras, Joan (2015) : Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis, IZA Discussion Papers, No. 8924, Institute for the Study of Labor (IZA), Bonn This Version is available at: http://hdl.handle.net/10419/110118 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu IZA DP No. 8924 Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis Joan Monras March 2015 DISCUSSION PAPER SERIES Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis Joan Monras LIEPP, Sciences Po and IZA Discussion Paper No.
    [Show full text]
  • The Mexican Peso Crisis: Implications for the Regulation of Financial Markets, 2 Law & Bus
    Law and Business Review of the Americas Volume 2 | Number 4 Article 3 1996 The exM ican Peso Crisis: Implications for the Regulation of Financial Markets Douglas W. Arner Follow this and additional works at: https://scholar.smu.edu/lbra Recommended Citation Douglas W. Arner, The Mexican Peso Crisis: Implications for the Regulation of Financial Markets, 2 Law & Bus. Rev. Am. 28 (1996) https://scholar.smu.edu/lbra/vol2/iss4/3 This Article is brought to you for free and open access by the Law Journals at SMU Scholar. It has been accepted for inclusion in Law and Business Review of the Americas by an authorized administrator of SMU Scholar. For more information, please visit http://digitalrepository.smu.edu. 28 NAFTA. law and Business Review of the Americas The Mexican Peso Crisis: Implications for the Regulation of Financial Markets Douglas W Amer I. The Quest for Capital and the Development of International Capital Markets II. The Mexican Peso Crisis of 1994-1995 A. THE ORIGINS OF THE MEXICAN Ciusis B. THE INTERNATIONAL SITUATION: THE TEQUILA EFFECr C. RESPONSES TO THE MEXICAN PESO CRISIS 1. InternationalAssistance 2. Domestic Responses D. EVALUATION OF EFFECTIVENESS III. Capital Surges and Domestic Market Regulation A. OVERVIEW OF THE REGULATION OF THE MEXICAN FINANCIAL SYsrEM B. IMPACT OF CAPITAL FLOWS ON THE MEXICAN FINANCIAL SYsTEM C. DOMESTIC REGULATORY MEASURES IN RESPONSE TO THE IMPACT OF THE CRISIS IV. The International Response to the Threat of Future Capital Surges A. THE IMF RESPONSE: LIQUIDITY AND DISCLOSURE B. THE GROUP OF TEN AND THE RESOLUTON OF SOVEREIGN LIQUIDITY CRISES 1.
    [Show full text]
  • Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis
    Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis Joan Monras∗ Sciences Po November 30, 2015 Abstract How does the US labor market absorb low-skilled immigration? I address this question using the 1995 Mexican Peso Crisis, an exogenous push factor that raised Mexican migration to the US. In the short run, high-immigration states see their low-skilled labor force increase and native low-skilled wages decrease, with an implied inverse local labor demand elasticity of at least -.7. Internal relocation dissipates this shock spatially. In the long run, the only lasting consequences are for low-skilled natives who entered the labor force in high-immigration years. A simple quantitative many-region model allows me to obtain the counterfactual local wage evolution absent the immigration shock. Key Words: International and internal migration, local shocks, local labor demand elasticity. JEL Classification: F22, J20, J30 ∗Economics Department and LIEPP. Correspondence: [email protected]. I would like to thank Don Davis, Eric Ver- hoogen and Bernard Salanié for guidance and encouragement and Miguel Urquiola, Jaume Ventura, Antonio Ciccone, Jonathan Vogel, David Weinstein, Jessie Handbury, Jonathan Dingel, Pablo Ottonello, Hadi Elzayn, Sebastien Turban, Keeyoung Rhee, Gregor Jarosch, Laura Pilossoph, Laurent Gobillon, and Harold Stolper for useful comments and discussions. I would also like to thank CREI for its hospitality during July 2012 and 2013, and the audience at the International Colloquium and the Applied Micro Colloquium at Columbia, the INSIDE Workshop at IAE-CSIC, the Applied Econ JMP Conference at PSU, the MOOD 2013 Workshop at EIEF, NCID - U Navarra, Sciences Po, INSEAD, Collegio Carlo Alberto, USI -Lugano, EIEF, Surrey, Cleve- land Fed, U of Toronto, MSU, UIUC, UC3M and the workshop “Global Challenges” organized by Bocconi, Cattolica, U.
    [Show full text]
  • "Mexican Meltdown: States, Markets, and Post-NAFTA Financial Turmoil" (With Maxwell Cameron)
    A revised version appears as: "Mexican Meltdown: States, Markets, and post-NAFTA Financial Turmoil" (with Maxwell Cameron). Third World Quarterly, Vol. 17, No. 5, 1996 MEXICAN MELTDOWN: STATES, MARKETS AND POST-NAFTA FINANCIAL TURMOIL Maxwell A. Cameron Associate Professor Norman Paterson School of International Affairs Carleton University, Ottawa, Ontario K1S 5B6 CANADA Tel: (613) 520-6655 Fax: (613) 520-2889 and Visiting Fellow Helen Kellogg Institute for International Studies 216 Hesburgh Center University of Notre Dame, Indiana 46556 USA Tel: (219) 631-6982 Fax: (219) 631-6717 E-Mail: [email protected] Vinod K. Aggarwal Professor University of California, Berkeley Berkeley, California, 94720 USA Tel: (510) 642-2817 Fax: (510) 642-9515 E-Mail: [email protected] September 1996 ABSTRACT The devaluation of the Mexican peso in December 1994 triggered a financial panic that required massive intervention by the United States government and the International Monetary Fund in an effort to prevent a full-scale financial collapse. This article examines the impact, causes, and policy implications of the peso crisis, as well as the reasons for the U.S.-led bailout package. It then considers the crisis in the light of three classical schools of international political economy: liberalism, mercantilism, and structuralism. The conclusions call attention to the potentially destabilising effects of deregulated financial markets, especially for countries that are heavily reliant on foreign savings, and suggests that existing institutions at the international level are inadequate for managing the problem. ABOUT THE AUTHORS Maxwell A. Cameron is Associate Professor at the Norman Paterson School of International Affairs at Carleton University and a Visiting Fellow at the Helen Kellogg Institute for International Studies at the University of Notre Dame.
    [Show full text]