Financial Policies in Emerging Markets

The 1994-1995 Mexican crisis was the first in a succession of financial crises to hit
emerging markets in Thailand, Indonesia, Malaysia, South Korea, Russia, Brazil, Argentina, and
Turkey. In almost all these cases, problems in the banking sector played a key role. Any analysis of
recent developments in emerging market economies must consider two questions: What is the degree of
financial vulnerability in emerging market economies, and what, if any, is the connection between
the exchange rate regime and financial vulnerability?This book furthers understanding of the impact
of financial policies on emerging market economies. Following an introduction by the editors, the
book contains two main sections. The first presents theoretical and empirical evidence on the
relation between financial policy and financial vulnerability. The second considers financial policy
in central and eastern Europe in terms of the euro and the European Monetary Union. Although there
is no clear-cut answer to which exchange rate regime works best, the book concludes that the
financial vulnerability of emerging market economies suggests the advisability of greater caution in
financial system liberalization and management.