In This Review

Financial Crises in Emerging Markets: An Essay on Financial Globalization and Fragility
Financial Crises in Emerging Markets: An Essay on Financial Globalization and Fragility
By Alexandre Lamfalussy
Yale University Press, 2000, 199 pp

For many years the author headed the Bank for International Settlements, an organization of central banks, before becoming president of the European Monetary Institute, the predecessor to the European Central Bank. He thus had a ringside seat during the world's financial crises of the past two decades. In this short book, he uses that perspective to offer a useful and penetrating analysis of four major international financial crises -- Latin America in 1982-83, Mexico in 1994-95, Asia in 1997, and Russia in 1998. He also includes lessons on preventing future crises and combating them when they occur, as they inevitably do. Lamfalussy's extensive experience, seasoned judgment, and accumulated wisdom lead him to ask more questions than he answers. But they are the right questions. For example, he disputes the now-standard advice to developing countries that they should allow their currencies to float. He also cautions against extending the international liberalization of capital markets into a country before its financial system satisfies demanding conditions, and he warns of premature liberalization of capital export by residents. What is needed, he concludes, is a cooperative framework among the world's major countries to deal with future financial crises -- but he disappoints in failing to sketch what that framework should be.