A Primer on Emerging Market Crises

Over the past 20 years there has been a proliferation of emerging market crises and a vast accumulation of commentary -- descriptive, theoretical and applied -- highlighting the origins and mechanics of each crisis and of crises in general. And there is plenty of analysis on how to deal with crises both in terms of prevention and of cures. Is it possible now to distill from all this a simple set of propositions that summarize the experience and capture the chief lessons? This paper sets out a few propositions that summarize what is known and accepted. The interest in doing so is to promote a set of presumptions about what is unsound practice with a presumption that it cannot fail to engender, in time, a crisis. At the center of that discussion is the role of balance sheets. Moreover, crises are not just financial experiences but rather involve large and lasting social costs and important redistribution of income and wealth. That makes it especially important to secure agreement on what constitutes bad practice and identify areas of continuing controversy.