Crisis Prevention: Lessons from Mexico and East Asia

Sebastian Edwards

NBER Working Paper No. 7233
Issued in July 1999
NBER Program(s):International Finance and Macroeconomics

This paper provides a comparative analysis of the East Asian and Mexican crises, and draws lessons for the emerging economies. Although much of the discussion concentrates on East Asia and Mexico, I also draw on the history of some previous crisis episodes. I argue that in spite of the efforts to understand the anatomy of currency crises, there are still a large number of controversial and unresolved issues. More to the point, I argue that some of the lessons extracted from these crises are based on a misreading of the historical record. As a result, some of the policy implications that have emerged from this debate are, to say the least, questionable. In particular, I make two points: First, I argue that, in general, current account ratios have limited usefulness in determining a country's financial health. Although I fall short of taking the position that the current account is completely irrelevant, I do argue that a rigid interpretation of current account ratios may be highly misleading. Second, I argue that the rapidly growing popularity of controls on capital inflows as a device for reducing external vulnerability is rooted in a misreading of the recent history of external crises.

download in pdf format
   (328 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7233

Published: Harwood, A., R.E. Litan, and M. Pomerleano (eds.) Financial Markets and Development: The Crisis in Emerging Markets. Washington, D.C.: World Bank, 1999.

Users who downloaded this paper also downloaded* these:
Edwards w6334 The Mexican Peso Crisis? How Much Did We Know? When Did We Know It?
Edwards and Savastano w6516 The Morning After: The Mexican Peso in the Aftermath of the 1994 Currency Crisis
Tornell w7139 Common Fundamentals in the Tequila and Asian Crises
Radelet and Sachs w6680 The Onset of the East Asian Financial Crisis
Cutler, Knaul, Lozano, Méndez, and Zurita w7746 Financial Crisis, Health Outcomes and Aging: Mexico in the 1980s and 1990s
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us