Introduction

Four major financial crises have struck middle-income developing countries (DCs) since the 1982 debt-crisis: Mexico in 1994 (and the subsequent ‘Tequila-effect’ in Argentina); East and Southeast Asia in 1997; Brazil in 1999; and Argentina in 2001.

Two common characteristics of the these crises are that the countries involved had recently open up their capital accounts, and that they had done so at a time of high liquidity in international financial markets and slow growth in most OECD economies – i.e., at a time when an over-liquid, highly volatile and under-regulated international financial market was anxiously seeking new high-yield investment opportunities.

The first part of this paper will attempt to show that no matter how diversely these financially liberalised DCs tried to deal with the absorption problem created by sudden surges in capital inflows, they inevitably ended up in financial crisis via a Kindlebergian cycle of ‘mania, panic and crash’. However, there is a clear distinction between the Latin American and the East Asian crisis-building pattern; furthermore, within Latin America there is a further distinction between Brazil (where there was a major policy attempt to avoid the Kindlebergian cycle via an aggressive sterilisation of inflows) and the other crises countries of the region.