Developing Nations Financial Crisis Due To Debt-Bubble Collapse

``The Second Financial Crisis`` by Alexander Rampal, Kim Bang Hee, translator

A series of financial crises in the new market economy has sparked off numerous debates on how to assess the status of the emerging global market system. Current economic theory postulates that mobilization of capital accelerates with the globalization of the market economy, improving the efficiency of resource distribution to developing nations.

Actual evidence, however, of the benefits of globalization to developing economies is weak. Due to the intrinsically unstable nature of the financial market, panic occurs frequently. Experts indicate that high risk factors that accompany the benefits of an open market may overshadow its advantages for smaller developing nations.

Professor Alexander Rampal, who served as the Secretary General of the World Bank and the Chair of the European Union in succession, attempts to provide in this book a critical analysis of this essential problem confronting the international market system.

Many former studies on the financial crisis have either confined their analysis within strictly theoretical boundaries and examined only one part of the overall financial crisis phenomenon, or widened the scope of research but failed to offer any verifiable data on the issue. In contrast, the author lacks exquisite theoretical foundations for the work, but provides a prime work of consistent analysis of the essence of the globalizing market economy and the financial crisis facing economically developing nations on the basis of his own experience.

Latin American countries, Mexico, Asia and Russian financial crises are nations who fall under such comprehensive and consistent analysis. The work points out that accumulation of short term debt and the collapse of the national assets bubble constitute core common problems, as well as the irrational nature of the global market economy and the distorted incentives of investors. It also admits honestly that international cooperation, which would improve the unstable situation of the global market economy, is lacking. Yet, the author does not conclude that the situation demands a definitive end to the globalization of the market. He reasons that this is a value-neutral situation that developing nations must experience as they pursue both economic development and stability simultaneously.

The author`s analysis and proposed solutions based on outstanding expertise and experience may not rest on intricate theories, but this makes his work all the more readable. The fact that he is not constrained by the logic of the international economy or the financial market is refreshing.

Unfortunately, the work ends up placing too much emphasis on encyclopedic explanations of the causes of the crisis, lacks an analysis of the mechanisms that spread it, proposes foreign investment as the ultimate measure for crisis prevention, and offers only a few concrete proposals for dealing with the problem.

Ham Joon Ho (Yonsei University, International Economics)