The Timing Game: Wall Street, Mexico and Argentina. A Temporal Analysis

  • Javier Santiso
Part of the The CERI Series in International Relations and Political Economy book series (CERI)


The interaction between politics and economics is central to an understanding of financial crises in Latin American emerging markets. The paradox is that, in spite of the evidence, very few studies have been devoted to an analysis of the links with, and importance of, political variables in the empirical literature on currency and financial crises. One of the reasons might have been the difficulty in formalizing political variables. But whatever the reasons behind this lack of integration of political variables, they are indeed significant explanatory factors of emerging market crises. As underlined by a recent study, structural political variables are significantly correlated to currency crises. Left-wing governments seemed more conducive to currency crises, democracies were in general less vulnerable than nondemocratic regimes and strong governments with legislative majorities and fragmented oppositions tend to be less vulnerable.2


Financial Market Financial Crisis Central Bank Mutual Fund Institutional Investor 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 7.
    See Mathieu Bussière and Christian Mulder, “Political Instability and Economic Vulnerability,” IMF Working Paper, 99/46, 1999.Google Scholar
  2. 8.
    See Phihppe Aghion, Alberto Alesina and Francesco Trebbi, “Endogenous Political Institutions,” Harvard University November 2001 (unpublished).Google Scholar
  3. 11.
    See Alberto Alesina, Ricardo Hausmann, Rudi Hommes and Ernesto Stein, “Fiscal Institutions and Budget Deficits in Latin America,” Journal of Development Economics, 59, 1999, pp. 233–255CrossRefGoogle Scholar
  4. 12.
    See Barry Ames, Political Survival, Berkeley, University of California Press, 1987.Google Scholar
  5. 13.
    See Steven A. Block, “Elections, Electoral Competitiveness and Political Budget Cycles in Developing Countries,” Center for International Development at Harvard University, Working Paper, No. 78, October 2001 (unpublished).Google Scholar
  6. 14.
    See for an empirical test Witold Jerzy Henisz, “Political Institutions and Policy Volatility,” The Wharton School of Management, University of Pennsylvania August 2001 (unpublished).Google Scholar
  7. 19.
    See Maria de los Angeles Gonzalez, “On Elections, Democracy and Macroeconomic Policy Cycles,” Princeton University, 1999 (unpublished).Google Scholar
  8. 21.
    See Christos Pantzalis, David Strangeland and Harry Tuttle, “Political Elections and the Resolution of Uncertainty:The International Evidence,”Journal of Banking and Finance, vol. 24, 2000, pp. 1575–1604.CrossRefGoogle Scholar
  9. 24.
    See, e.g. the reports produced by JP Morgan, “Argentina: The‘Model’—Not Just the Peg—Suffers,” New York, JP Morgan Economic Research, December 27 and 31, 2001.Google Scholar
  10. 25.
    See for a general assessment, Stephan Haggard, The Political Economy of the Asian Financial Crisis, Washington, D.C., Institute of International Economics, 2000; and Allan Drazen, Political Economy in Macroeconomics, Princeton, Princeton University Press, 2000.Google Scholar
  11. Allan Drazen, Political Economy in Macroeconomics, Princeton, Princeton University Press, 2000.Google Scholar
  12. 31.
    On the financial crisis of 1994, see Maxwell Cameron and Vinod Aggarwal, “Mexican Meltdown: States, Markets and Post-NAFTA Financial Turmoil,” Third World Quarterly, vol. 17, December 1996, pp. 975–987CrossRefGoogle Scholar
  13. Riordan Roett, ed., The Mexican Peso Crisis. International Perspectives, Boulder, Lynne Rienner Publishers, 1996.Google Scholar
  14. 37.
    See for a comparison between Mexican and Chilean financial crises Sebastian Edwards,“A Tale of Two Crises: Chile and Mexico,” NBER Working Paper 5794, October 1996; reprinted “Two Crises: Inflationary Inertia and Credibility,” The Economic Journal vol. 108, no. 448, May 1998, pp. 680–702.CrossRefGoogle Scholar
  15. 38.
    See, on the politics of Mexican finance during the 1990s, Timothy Kessler, “Political Capital: Mexican Financial Policy Under Salinas,” World Politics, vol. 51, October 1998, pp. 36–66.CrossRefGoogle Scholar
  16. 42.
    See Guillermo Calvo, Leonardo Leiderman and Carmen Reinhart, “Inflows of Capital to Developing Countries in the 1990s,” Journal of Economic Perspectives vol. 10, no. 2, Spring 1996, pp. 123–139CrossRefGoogle Scholar
  17. Ricardo french-Davis and Stephany Griffith Jones, eds., Coping with Capital Surges. The Return of Finance to Latin America, Boulder, Lynne Rienner, 1995Google Scholar
  18. for later dynamics Felipe Larrain, ed., Capital Flows, Capital Controls and Currency Crises: Latin America in the 1990s, Ann Arbor, University of Michigan Press, 2001Google Scholar
  19. Stephany Griffith Jones and Manuel Montes, eds., Short-Term Capital Flows and Economic Crises, Oxford, Oxford University Press, 2001.Google Scholar
  20. 45.
    See Guillermo Calvo and Enrique Mendoza, “Mexico’s Balance of Payments Crisis: A Chronicle of a Death Foretold,” Journal of International Economics, vol. 41, no. 3–4, November 1996, pp. 235–264CrossRefGoogle Scholar
  21. Jeffrey Sachs, Aaron Tornell and Andrés Velasco, “The Mexican Peso Crisis: Sudden Stop Death or Death Foretold,” Journal of International Economics, vol. 41, no. 3–4, November 1996, pp. 265–283.CrossRefGoogle Scholar
  22. 48.
    See the introduction of Charles Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises, New York, John Wiley & Sons, 4th edition, 2001.CrossRefGoogle Scholar
  23. 49.
    See Arturo Porzecanski, Emerging Markets Weekly Report, New York, ING Securities, December 2, 1994.Google Scholar
  24. 51.
    Quoted by Sebastian Edwards, “The Mexican Peso Crisis: How Much Did we Know? When Did we Know It?” NBER Working Paper, No. 6334, December 1997, p. 8.Google Scholar
  25. 52.
    David Malpass and David Chon, Mexican Pesos and Cetes are Attractive, New York, Bear Stearns, November 7, 1994Google Scholar
  26. JP Morgan, Emerging Markets Outlook, New York, Several Issues, 1994.Google Scholar
  27. 54.
    See Andrés Oppenheimer, Bordering on Chaos. Guerrillas, Stockbrokers, Politicians and Mexico’s Road to Prosperity, New York, Little, Brown & Co, 1996.Google Scholar
  28. 61.
    On the role of the IMF and more generally of industrial countries in emerging market crises see Jeffrey Frankel and Nouriel Roubini, “The Role of Industrial Country Policies in Emerging Market Crises,” in Martin Feldstein, ed., Economic and Financial Crises in Emerging Market Economies, Chicago, Ill., University of Chicago Press, 2001. For a historical perspective on the IMF Michael Bordo and Anna Schwartz,“From the Exchange Stabilization Fund to the International Monetary Fund,” NBER Working Paper, No. 8100, January 2001.Google Scholar
  29. 66.
    See Jeffrey Frankel and Sergio Schmukler, “Country Fund Discounts and the Mexican Crisis of December 1994,” Open Economies Review, vol. 7, no. 1, 996, pp 511–534CrossRefGoogle Scholar
  30. Jeffrey Frankel and Sergio Schmukler, “Country Funds and Asymmetric Information,” International Journal of Finance and Economics, vol. 5, July 2000, pp. 177–195. The U.S. Federal Reserve (FED) bulletins for the first half of 1996 also confirm the loss of confidence among Mexicans themselves in their own currency While the government was negotiating financial support from the international community to reimburse its short-term debt, contracted partly in the aftermath of the peso’s devaluation, holders of Mexican capital continued their massive transfers to the United States. In its June 1996 report the FED disclosed that the funds of Mexican origin deposited in the United States totalled some US$ 25 bn. on December 31, 1995, twice as much as a year earlier. Mexicans alone hold 27.5% of all Latin American deposits in U.S. financial institutions, far ahead of Brazil, Argentina, Venezuela and Colombia, whereas in 1994 Mexico was in third place after Argentina and Venezuela. In 1995, apart from the Mexicans, only the Brazilians had considerably increased their deposits abroad.CrossRefGoogle Scholar
  31. 69.
    See André Orléan, Le pouvoir de la finance, Paris, Editions Odile Jacob, 1999Google Scholar
  32. André Orléan, “Contagion spéculative et globalisation financière: quelques enseignements tirés de la crise mexicaine,” in André Cartapanis, ed., Turbulences et spéculations dans l’économie mondiale, Paris, Economica, 1996, pp. 27–45Google Scholar
  33. André Orléan,“Le rôle des influences interpersonnelles dans le détermination des cours boursiers,” Revue Economique 5, September 1990, pp. 839–868.Google Scholar
  34. 71.
    Henry Kaufman, “Opening remarks,” in Mexico: Why didn’t Wall Street Sound the Alarm? New York, Group of Thirty, 1995 (not published).Google Scholar
  35. 73.
    Paul Krugman, “Dutch Tulips and Emerging Markets,” Foreign Affairs, vol. 74, 1995, p. 33.Google Scholar
  36. See also Paul Krugman, Currency Crises, Chicago, Ill., University of Chicago Press, 2000.CrossRefGoogle Scholar
  37. 75.
    See Robert Gilpin, The Challenge of Global Capitalism, Princeton, Princeton University Press, 2000Google Scholar
  38. Guillermo Calvo,“Capital-Markets Crises and Economic Collapse in Emerging Markets: An Informational-Frictions Approach,” American Economic Review vol. 90, no. 2, May 2000, pp. 59–64.CrossRefGoogle Scholar
  39. 79.
    See Jorge Mariscal, Latin American Stocks in 1996: A Bravo New World, New York, Latin American Research Equity Markets Strategy, Goldman Sachs, January 1996.Google Scholar
  40. 82.
    See Fitch Ratings, “Mexico: Investment Grade,” New York, Fitch Ratings Sovereign Comment, January 22, 2002Google Scholar
  41. Standard & Poor’s, “United Mexican States. Upgraded to investment grade; Outlook Stable,” New York, Standard and Poor’s, February 7, 2002.Google Scholar
  42. 85.
    See for a detailed analysis Roberto Rigobon, “The Curse of Non-Investment Grade Countries: Excess Vulnerability,” Journal of Development Economics vol. 69, no. 2, December 2002, pp. 423–449.CrossRefGoogle Scholar
  43. 86.
    For more analysis on the meaning of the crisis fror the United States, see Jorge Castañeda, The Mexican Shock: Its Meaning for the US, New York, The New Press, 1995Google Scholar
  44. 92.
    See Mohamed A. El-Erian, “The Ant Trail,” Pimco Emerging Markets Watch, Newport Beach, Calif., August 2001.Google Scholar
  45. 95.
    Walter Molano, “Overview: Why I Cry for Argentina,” New York, BCP Securities, The Latin American Adviser, January 8, 2002.Google Scholar
  46. 101.
    See Dresdner Bank Lateinamerika, “Latin American Spotlight. Update October 2001,” Hamburg, Dresdner Bank Lateinamerika Economics, October 2001Google Scholar
  47. JP Morgan, “Sizing up Argentina’s Resistance to Financial Stress” and “Latin America Facing a New Balance of Payments Shock,” in JP Morgan, “Global Data Watch,” New York, JP Morgan Chase Economic Research, September 28, 2001Google Scholar
  48. Goldman Sachs, “Latin America: A Weaker Outlook for Latin America,” New York, Goldman Sachs Latin America Economic Analyst, September 18, 2001Google Scholar
  49. JP Morgan, “Focus: Latin America. The Peace Dividend Gives Way to the War Levy,” New York, JP Morgan Chase Global Emerging Markets Equity Strategy, September 19, 2001Google Scholar
  50. on the global impact analysis by one of the leading Wall Street economists Stephen Roach of Morgan Stanley, “Special Edition Aftershocks of the Terrorists Attacks. Tragedy and Macro-shock,” New York, Morgan Stanley Dean Witter Global Economics Group, Weekly International Briefing, September 17, 2001.Google Scholar
  51. 104.
    See JP Morgan, Emerging Markets Outlook, New York, JP Morgan Emerging Markets Research, December 6, 2001, p. 7.Google Scholar
  52. 105.
    Goldman Sachs, “The Argentina ‘Tango’ Effect on Latin America,” New York, Goldman Sachs Latin America Economics and Equity Research, November 15, 2001.Google Scholar
  53. 109.
    See Dresdner Bank Lateinamerika, Latin American Daily Spotlight Dresdner Bank Lateinamerika, January 30, 2002.Google Scholar
  54. 111.
    See JP Morgan, Emerging Markets Outlook, New York, JP Morgan Emerging Markets Research, December 6, 2001, p. 12.Google Scholar
  55. 112.
    JP Morgan,“Emerging Markets Client Survey: Results for 20th December 2001,” New York, JP Morgan Emerging Markets Strategy December 20, 2001.Google Scholar
  56. 115.
    See the study by Héctor Schamis and Christopher Way, “The Politics of Exchange Rate-Based Stabilisation,” Cornell University Working Paper 2001 (unpublished).Google Scholar

Copyright information

© Javier Santiso 2003

Authors and Affiliations

  • Javier Santiso

There are no affiliations available

Personalised recommendations