INTRODUCTION

Increasing openness and economic liberalization have been credited with fostering higher growth and record capital inflows in many emerging market countries. For many countries, especially in Asia but to some extent also in Latin America, the first part of the 1990s was characterized by considerable optimism and buoyant growth. However, this optimism has been tempered by recent financial crises, beginning with Mexico in 1994–1995, the Asian crisis of 1997–1998, and the crises in Russia, Brazil, and several other Latin American countries in 1998–1999. These crises have been costly to varying degrees – particularly where banking sector problems have been involved – both in terms of lost output and the fiscal expenditures to restore fragile financial sectors.

The recent crises illustrate the risks of financial volatility and macro–economic instability during the process of economic growth and development. They also raise issues regarding the management of risks associated with liberalization and global integration, particularly in financial markets. Concerns about the implications of international capital flows for developing countries have grown with the sharply increased volume of these flows since the late 1980s. Some have argued that emerging markets have been the innocent victims of mercurial global investors, while others have questioned the appropriateness of specific policies in the emerging markets themselves.

The essays in this volume provide a comprehensive analysis of the theoretical and policy issues associated with recent financial crises in emerging markets.