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Capital Flows and Financial Crises (Council on Foreign Relations Book)

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The emerging markets crisis that unfolded beginning in the summer of 1997 has catapulted the debate on capital inflows into emerging markets, and the boom and bust cycles that have accompanied these inflows, to the center of policy discussions. The present volume examines the patterns of private capital flows into emerging markets by placing them in historical perspective, and evaluates the policy responses that governments have used to deal with the problems associated with cross-border capital flows, and suggests policies that balance the risks and benefits from the ascendancy of financial markets and the market-based mode of governance. It is a timely contribution to the ongoing debate, and constitutes highly recommended reading for anyone who is interested in acquiring a grasp of the patterns in emerging markets financing, the ongoing policy debate, as well as the dilemmas that international capital flows continue to pose to emerging market recipients of these flows. The volume would have benefited from a capital markets perspective on financial crises as recent market dynamics have been crucially dependent on capital market factors such as risk management of banks. The papers were written in the early part of the recent crises, focusing on Thailand and in some cases Korea, but not including Russia's default in August 1998 and Brazil's recent devaluation. Kahler, however, does an excellent job in putting the papers together in one volume and writing an insightful overview tying the themes together. The chapters in this volume provide a good overview of the issues surrounding the inflows of capital to emerging markets and the policy conondrums they engender. While the focus is primarily macroeconomic and ignores some of the features of international financial markets that have characterized the recent emerging markets crisis, the wealth of theory and facts are important tools to anyone interested in understanding cross-border capital flows.