International Economics
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Dominick-Salvatore-International-Economics
Tobin, Dornbusch, and Frankel believed that the international financial system could be
Salvatore c21.tex V2 - 11/07/2012 10:29 A.M. Page 709 21.6 The International Monetary System: Present and Future 709 made to operate much more smoothly and without any need for close policy coordination by the leading industrial countries, which they regard as neither feasible nor useful. Critics of these proposals, however, point out that it is next to impossible to separate “nonproduc- tive” or speculative capital flows from “productive” ones related to international trade and investments. Finally, there is the single world currency advocated by Mundell because “a global economy requires a global currency.” It remains to be seen, however, if the leading nations are prepared to give up some of their autonomy in the coming years in order to have greater success in achieving their economic objectives. In the end, reform of the present international monetary system is likely to involve improving the functioning of the present system rather than replacing the present system by establishing a brand new one [see Kenen (1983, 2007); Goldstein (1995); Eichengreen (1999, 2008); Salvatore (2000, 2002, 2005, 2010, 2011, 2012); Rajan (2008, 2010); Truman (2006, 2009); Dooley, Folkets-Landau, and Garbar (2009); Ghosh, Ostry, and Tsangarides (2010); Stigliz (2010); Klein and Shambaugh (2010); Reinhart and Rogoff (2010); and Razin and Rosefielde (2011)]. 21.6 E Financial Crises in Emerging Market Economies Another serious problem facing the present international monetary system is its seem- ing inability to prevent international financial crises in emerging and advanced market economies. There have been six crises in emerging markets since the mid-1990s: Mex- ico in 1994–1995, Southeast Asia in 1997–1999, Russia in summer 1998, Brazil in 1999, and Turkey and Argentina in 2001–2002 (see Case Studies 21-2 and 21-3). The IMF ■ CASE STUDY 21-2 The Anatomy of a Currency Crisis: The Collapse of the Mexican Peso In December 1994, Mexico found itself in the grip of an intense financial crisis that triggered the deep- est recession the country had faced in decades. The immediate cause for the crisis was the sharp increase in U.S. interest rates during 1994, which reversed the large United States to Mexico capital flow. This was aggravated by the political crisis triggered by the armed rebellion in the southern state of Chiapas in January 1994 and the murder of two high political officials later in 1994. In order to reverse the resulting mas- sive capital outflows, Mexico started to issue short-term, dollar-denominated securities and sharply increased domestic interest rates. Fearful that Mexico would not be able to service its loan obligations, however, foreign investors continued to pull funds out of Mexico. This forced Mexico to devalue the peso by 15 percent from 3.500 pesos to the dollar to 4.025 on December 20, 1994. But this was too little too late, and in the face of continued loss of international reserves, Mexico was forced to let the peso float. The peso then depreciated to 7 pesos to the dollar by March 1995 and reached nearly 8 pesos to the dollar in December 1995. In order to help Mexico and to prevent the spread of the financial crisis to other emerging mar- kets (particularly Argentina and Brazil), the United States organized an international support package of nearly $48 billion through the IMF in January 1995, which succeeded in calming financial mar- kets and containing the crisis to Mexico. But very high interest rates and deep budget deficit cuts plunged Mexico into a deep recession in 1995. It was only in 1996 that the bottom of the recession was reached and growth resumed in Mexico. Download 7.1 Mb. Do'stlaringiz bilan baham: |
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