Capital market crises: liberalisation, fixed exchange rates and market-driven destabilisation

Abstract

External financial crises are not caused by an alert private sector taking advantage of the public sector's foolish actions such as running an unsustainable fiscal deficit or creating moral hazards. They are better described as private sectors (both domestic and foreign) acting to make destabilising short-term profits when policy and circumstances provide the preconditions and the regulatory authorities acquiesce. Policy alternatives are discussed in the present global macroeconomic environment, in particular the counter-productive interventions of the International Monetary Fund in East Asia.

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