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Financial Crises: How and Why and Lessons

Recent Major Financial Crises

1980's: Debt crisis for developing countries (Latin America and Africa)

1992: European Exchange Rate Mechanism (especially UK and Sweden)

1994-95: Mexico (Tequila crisis) and Argentina

1997-98: Asian financial crisis (Thailand, Indonesia, Korea, Philippines, Malaysia)

1998: Russia

1999: Brazil

2000-02: Turkey

2001-02: Argentina (again)







Nature of Financial Crises

Exchange rate crises

Sudden, drastic depreciation of the country's currency

Banking crises

Depositors lose confidence (disintermediation)
Banks can't perform lending function

Effects

Severe recession, due to:
Collapse of bank loans
Reduction in consumer demand
Higher interest rates

Inflation, due to:
Higher import costs



Causes of Financial Crises:
1. Macroeconomic Imbalances

Where: Russia 1999, Brazil 1999, Turkey 2000, Argentina 2001

Characteristics of......

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Approximate Word Count: 1451
Approximate Pages: 6 (250 words per double-spaced page)

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