Global Capital Markets

The risks of doing so are both economic and political. While financial liberalization can bring in more development capital, that capital may surge away again, or become more expensive, due to shifts in the global financial climate. Rapid growth may promote a bubble psychology, producing wastful mis-investments and a sharp downturn when the bubble bursts. An economic downturn may then lead to a political crisis. So long as times are good, nationalist grumbling about foreign investment is likely to be muted, but if times turn bad--and particularly if leaders are compelled to impose austerity measures by the International Monetary Fund (IMF), resentments may turn explosive. In Latin America, for example, IMF-bashing is a persistant feature of regional politics (Maddison, 1985, p. 81).

Nevertheless, the question of financial liberalization is today largely

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tioning has become politicized--capital being apportioned to powerful and favored sectors, or even those with personal ties to the leadership. The current situation in Indonesia has underlined the latter case. Economic policy in Indonesia was firmly centralized, with "favored sectors" receiving no formal preference. "In the period since the mid-1970s, systematic political exclusion has become institutionalized, with policy decisions being shaped by bureaucrats operating in a manner largely unconstrained by organized political action from societal groups" (MacIntyre, 1993, p. 123). Even the powerful army eschewed the sort of corruption among officers that has often been found in developing countries under military rule. According to an account in the early 1990s, "signs indicate that senior army leaders have concluded that pervasive corruption has the potential to be regime-threatening" (MacIntyre, 1993, p. 156). With the financial crisis of 1997, however, it became clear that, in Indonesia, control from the center went hand in hand with corruption at the center. It has not been "favored sectors," or army officers, who siphoned off development capital, but the Suharto family and its cronies. On the other hand, experi
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Some common words found in the essay are:
Haggard Lee, Latin America, , Southeast Asian, Gilibert Steinherr, Goldstein Calvo, Cornell University, Martin Feldstein, Chile Uruguay, P-L Steinherr, developing countries, haggard lee, lee 1993, haggard lee 1993, foreign capital, favored sectors, government intervention, politics finance, financial system, latin america, maxfield eds politics, emerging markets, private capital flows, lee maxfield eds, haggard lee maxfield,
Approximate Word count = 1566
Approximate Pages = 6 (250 words per page)

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