A Tale of Two Emerging-market Crashes: Mexico and South Korea in a Comparative Perspective
This thesis provides a structural-comparative study of the Mexican and South Korean experiences in coping with financial globalization. Focusing on the origins, gestation, and dynamics of the Mexican crisis of 1994-95 and the South Korean crisis of 1997-98, it aims to shed light on the political economy of financial globalization and its impact on developing countries. The framework of analysis guiding this thesis highlights two crucial power relations vital to understanding the process by which developing countries are being integrated into the global financial system, as well as to explaining the crises in our case countries: the shifting balance of state-market relations and the asymmetrical power relations underlying the international political system. The methodological appeal of Mexico and South Korea rests on the compelling fact that despite their profound differences in domestic variables, they both went through similar processes of market liberalization leading to similar boom-to-bust cycles. At the root of the two crises lay this remaking of the Mexican and Korean economies, a process of marketization that was not determined entirely by domestic variables alone but conditioned on the balance of state-market relations prevailing at the international level, one that was and continues to be shaped by American hegemony. To establish this argument, the thesis exposes six myths prevalent in the neoliberal perspective, all focused on domestic factors: macroeconomic imbalances, policy mistakes, industrial policy, financial repression, moral hazard, and crony capitalism. It then shows how the rebalancing of state-market relations in the two countries unleashed market forces to result in catastrophic failures, drawing particular attention to the biggest and most destructive of all: capital account liberalization and the consequent exposure to the structural fragility of the global financial system. The analysis demonstrates that the two crises were essentially episodes of irrational, panic-driven, and ultimately self-fulfilling bank runs unjustified by the underlying economic fundamentals of the two countries, highly disproportionate to their "sins," and more indicative of the systemic shortcomings of global financial markets than of any number of endogenous problems identified elsewhere as the source.
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THE FIRST TALE PART I MEXICOS PATH TO MARKET REFORMS
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Asian crisis assets average balance Banco de Mexico Bank of Korea bank run banking system billion borrowing Camdessus capital account capital account liberalization capital inflows central bank cetes chaebol commercial banks corporate creditors crises crony capitalism currency current account deficit debt decade December deregulation devaluation developing countries dollar domestic East Asian Economic Statistics System equity exchange rate exports external figures Financial Crisis financial markets financial system firms fiscal foreign investors Fund global finance growth Ha-Joon Chang Hanbo Ibid idem interest rates investment Jeffrey Sachs Kim administration Korean banks Korean economy loans Lustig macroeconomic Mexican Economy 1996 Mexican government Mexico and Korea Mexico City moral hazard NBFIs neoliberal OECD package panic percent of GDP peso crisis portfolio pressure problem reforms regime regulatory reserves restructuring Seoul sexenio short-term South Korea stabilization state-market relations structure tesobonos trade Treasury United University Press Washington World Bank