Problems of Growth and Stability
Edited by Pier Carlo Padoan, Paul A. Brenton and Gavin Boyd
Chapter 2: From overlending to crisis, to a new international financial regime? Lessons from the 1990s*
Pier Carlo Padoan The 1990s have witnessed a dramatic increase in financial liberalization and integration, in terms of deepening financial activity and of the number of countries gaining access to market lending. Indeed, financial liberalization represents one of the most important structural transformations of the past few decades in the international system, with deep implications for the way international economic relations develop as well as for the way economic policies are carried out. While peculiar in many respects, the developments of the past decade follow a familiar pattern in international financial relations. After the recovery from the debt crisis of the 1980s that led to a decrease in international lending to emerging economies, financial markets, supported by a wave of liberalization and deregulation, returned to a phase of lending euphoria that eventually produced fragilities and crises that, in the second half of the past decade, have hit Asia, Latin America and Russia. As after every major crisis, the policy debate that followed has led to reassessments of how to deal with international financial integration. Such reassessments center on macroeconomic policies; the role of international financial institutions; the need to support markets with more effective regulation and institutions; and the so-called ‘new international financial architecture’. This chapter offers a quick overview of the major transformations in international financial relations during the 1990s and of the policy lessons that can be drawn from the sequence of euphoria, overlending and crises. It then discusses the prospects of establishing, in forms consistent with the...
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