A Handbook of Alternative Monetary Economics
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A Handbook of Alternative Monetary Economics

Edited by Philip Arestis and Malcolm Sawyer

This major Handbook consists of 29 contributions that explore the full range of exciting and interesting work on money and finance currently taking place within heterodox economics. There are many themes and facets of alternative monetary and financial economics but two major ones can be identified.
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Chapter 24: A Post-Keynesian Analysis Financial Crisis in the Developing World and Directions for Reform

Ilene Grabel


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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