Where is the Reality Check?

Dec 1, 2001

The crisis in Argentina dramatically demonstrates how little the international financial community has learned from the string of crises that have erupted in the emerging markets over the last few years. And there is little sign that Latin America's latest debt crisis will make a difference.

Unless action is taken by the G-7 to make good on its promise to create a "new financial architecture," the world's financial system will remain susceptible to future crises of a similar nature. While there have been recent calls for renewed attention to the problem, it is most likely that the aftermath to the Argentine crisis will see renewed complacency and wishful thinking with the belief that emerging market countries have learned a lesson and will practice good governance. As Paul Krugman points out in his book, "The Return of Depression Economics," the learning process should have begun after the meltdown in Mexico in late 1994 but was a "warning ignored." And we now forget that the ensuing Tequila crisis of 1995 affected Argentina more than any other country in the hemisphere, requiring a $12 billion International Monetary Fund loan to support the country's banks. Argentina's strong recovery...

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