Policy Lessons for this Decade

Abstract

One of the outstanding features of modern financial crises is that they have taken place in emerging economies that were generally viewed as highly successful, until crises exploded. Recent crises have been radically different to those typical from the 1940s to the 1970s in Latin America. They displayed three major features that have been absent or relatively less important in recent experiences. They used to involve, first, large fiscal deficits that were financed with external loans or, in the absence of such financing, with money issuing by central banks. Second, domestic financial systems were “repressed”, a fact that was generally accompanied by private sector access to rediscount or bank loans at negative real interest rates. Finally, balance of payments crises were frequently associated with a sharp worsening in terms of trade and/or by explicit domestic policy decisions to overvalue exchange rates.

Based on overview chapters in three of the projects I have coordinated recently. They are cited as Ffrench-Davis and Ocampo (2001), Ffrench-Davis (2003) and Ffrench-Davis (2005).