Edited by Philip Arestis and Malcolm Sawyer
Chapter 24: A Post-Keynesian Analysis Financial Crisis in the Developing World and Directions for Reform
24 A post-Keynesian analysis of ﬁnancial crisis in the developing world and directions for reform Ilene Grabel1 1. Introduction The Mexican crisis of 1994–95 was the ﬁrst in a series of currency and ﬁnancial crises that have unfortunately become a recurrent feature of life in the developing world over the last ten years. Former International Monetary Fund Managing Director Michel Camdessus had it right when he dubbed the Mexican débâcle the ‘ﬁrst ﬁnancial crisis of the twentyﬁrst century’. Shortly thereafter, ﬁnancial crises emerged in numerous developing countries in rather close succession to one another. The most serious and perhaps surprising currency and ﬁnancial crises of the last decade took place in the East Asian ‘miracle economies’ during 1997–98. Turkey, Brazil, Poland, Russia and Argentina were also parties to rather severe ﬁnancial instability in this same period. The East Asian crises stimulated an outpouring of research by heterodox economists, particularly by post-Keynesians (e.g. Arestis and Glickman, 2002; Chang, 1998; Crotty and Dymski, 1998; Crotty and Epstein, 1999; Grabel, 1999; 2003c; Palma, 1998; Singh, 1999; Taylor, 1998; Wade, 1998).2 This is because heterodox economists found in the events in East Asia strong support for their case that neoliberal ﬁnancial reform is fundamentally inappropriate for developing countries in so far as it introduces important types of currency and ﬁnancial risk. These risks can and often do culminate in currency and ﬁnancial crises. When many of the world’s fastest-growing economies in Asia collapsed, neoliberal economists tried to explain...
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