The Episodes of Currency Crisis in Latin American and Asian Economies

Abstract

At the end of 1994 the serious currency crisis hit Mexico, and during next few months it spread to other Latin American  countries, particularly to Argentina (the so-called Tequila effect). Although Argentina managed to defend its currency board, the sudden outflow of capital and banking crisis caused a one-year recession. Currency crises have not been the new  phenomena in the Western Hemisphere where many Latin American countries served through decades as the textbook  examples of populist policies and economic mismanagement. However, two main victims of "Tequila" crisis – Mexico and  Argentina – represented a pretty successful record of reforming their economies and experienced turbulence seemed to be unjustified, at least at first sight.
Two years later even more unexpected and surprising series of financial crises happened in South East Asia. The Asian Tigers enjoyed a reputation of fast growing, macroeconomically
balanced and highly competitive economies, which managed to make a great leap forward from the category of low-income developing countries to middle or even higher-middle income group during life of one generation.

However, a more careful analysis as done in this volume could easlly the specify several serious weaknesses, particularly related to financial and  corporate sector. Additionally, as in the case of Mexico, managing the crisis in its early stage was not specially successful and only provoked further devaluation pressure and financial market panic.