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Roots of the Financial Crisis of 1990s and the Role of International Financial Institutions in Resolving the Crisis - Coursework Example

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"Roots of the Financial Crisis of the 1990s and the Role of International Financial Institutions in Resolving the Crisis" paper discusses the financial crisis that hit many emerging markets during the time frame of the 1990s. The paper identifies the various roots that aggravated the crisis. …
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Roots of the Financial Crisis of 1990s and the Role of International Financial Institutions in Resolving the Crisis
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Download file to see previous pages The pre-crisis domestic idiosyncrasies in these countries included brisk liberalization of the financial sector in the late precedent decade of 1980, issues with exchange rate policies, mismanagement of foreign capital, and absence of appropriate financial regulatory prerequisites. It also discusses the role of international financial institutions in relieving the crisis-affected countries.

Before discussing and evaluating the effect of antecedents of the crisis of the 1990s, it is vital to first understand a generalized phenomenon of a financial crisis as appeared in emerging economies. The financial crisis, as onset during the 1990s, is characterized by an abrupt turnaround of capital flows back to the lending sources which determined withdrawal of short term foreign debts; break out of portfolio resources and cross country running off by local investors (Eichengreen, & Temin, 1992). All these exacerbated the financial crisis by curbing the affected countries access to foreign capital, limiting foreign creditors’ interest in lending, lacking financial reserves and assets in paying off the already generated foreign short term liabilities, the depressing value of domestic currencies relative to the international economies and respective currencies; all resulted in domestic financial resources crunch within the economic and financial setup of the affected countries (Temin, 1993).

The individual national economic structure and the financial system of the affected countries had inherent flaws associated with their domestic policies, regulations, and management (Mishkin, 1992). The financial market collapse in these affected countries is linked back to their adoption and implementation of financial liberalization policies in an abrupt and nonsystematic manner. Such a widespread immediate execution of liberalization policies focusing establishment financial market was designed to create a pool of foreign resources to finance domestic strategic structural operations, manufacturing, and trade (Coe, 2002).  ...Download file to see next pagesRead More
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