ABSTRACT
The Mexican crisis of 1994-1995 signaled the beginning of a wave of financial crises across the developing world that continues to this day. Former International Monetary Fund (IMF) Managing Director Michel Camdessus had it right when he dubbed the Mexican debacle the “first financial crisis of the twenty-first century” (cited in Boughton, 2001). The most serious and perhaps surprising of these took place in the East Asian “miracle economies,” economies that were hailed as such right up until they imploded. It was followed by severe financial instability in Turkey, Brazil, Poland, Russia and Argentina. Though each of these crises was marked by unique characteristics, each occurred in the fragile environment fueled by speculative booms made possible by misguided programs of internal and external financial liberalization. What Camdessus did not understand was that the neo-liberal financial regime that his institution promotes to this day induces the very turbulence that he lamented at the time of the Mexican crisis. Indeed, as I will argue below, policymakers in the developing world now face even greater pressures to conform to the neo-liberal model because the Fund’s traditional advocacy for it has been reinforced by the new commitment to policy coherence and by interlocking commitments to liberalize that are embodied in bi-and multi-lateral trade and investment agreements. I have three chief objectives in this chapter. First, I argue that neo-liberal financial reform remains inappropriate for developing countries. The neo-liberal financial model introduces several types of risks to developing countries, encourages a pattern of what I have earlier termed “speculation-led economic development” (Grabel, 1995), promotes economic stagnation and aggravates problems of economic inequality, and shifts power and resources to domestic and foreign financiers. Second, I argue that advocacy for the neo-liberal financial model continues unabated despite signs that some mainstream economists (even those conducting research for the IMF) have acknowledged its shortcomings since the Asian crisis. Third, I argue that the IMF’s traditional advocacy has been amplified by the “cross conditionality” that stems from a particular understanding of policy coherence and from provisions in recent trade and investment agreements.
