Financial Crises, 1929 to the Present
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Financial Crises, 1929 to the Present

Sara Hsu

This fascinating volume offers a comprehensive synthesis of the events, causes and outcomes of the major financial crises from 1929 to the present day. Beginning with an overview of the global financial system, Sara Hsu presents both theoretical and empirical evidence to explain the roots of financial crises in general. She then provides a thorough breakdown of a number of major crises of the past century, both in the United States and around the world.
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Chapter 6: Mid 1990s: Mexican crisis and Asian financial crisis

Sara Hsu


Starting in the mid-nineties, financial crises worsened. With the continuing trend of liberalization, countries opened themselves up to volatile capital flows. Prevailing wisdom found that liberalization was the path to growth. Mexico, which had suffered like other Latin American countries in the eighties from the debt crisis and its accompanying slow growth, was eager to regain its foothold in development. What was not well understood at the time was that liberalization could create dangerous instability. The newly industrializing economies in Asia also followed the path of liberalization. At the time, it seemed to work miracles; economic growth was as high as 11 percent in the early nineties in Singapore and Thailand. But growth did not last, and capital flows rapidly switched course and fled the Asian nations. The capital outflows caused both currency and banking crises, and threatened to spread to other countries. Both crises threatened global financial stability. For this reason, the IMF became the global lender of last resort, embarking on a controversial role that it would play on the world stage. At the time, its wisdom was accepted. We next examine the historical context of these two crises and describe how events unfolded.

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