Summary
This section outlines the dynamics of financial crises in emerging market economies through a three-stage process: initial phase, currency crisis, and full-blown financial crisis. Two main pathways leading to crises are identified: one arising from mismanagement of financial liberalization/globalization (credit boom and bust) and the other from severe fiscal imbalances. Both paths involve a deterioration in bank balance sheets compounded by adverse selection and moral hazard, often culminating in a speculative attack on domestic currencies. Case studies of South Korea and Argentina illustrate the distinct triggers and consequences, while policy recommendations emphasize the need for stronger prudential regulation, sound supervisory practices, enhanced disclosure, and measures to limit currency mismatch.