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able of Contents
Acknowledgements vii
Contributors ix
INTRODUCTION 1
Scheherazade S. Rehman
PART I - HISTORY AND BACKGROUND 7
1. Howard Curtis Reed
Managing Financial Crises: Who's In Charge? 9
PART II - EUROPEAN UNION AND OTHER REGIONAL EXCHANGE
RATE ARRANGEMENTS 29
2. Sir Alan Walters
Monetary Unions In Europe 31
3. Hans Tietmeyer
Financial Crisis Management In The E'J/ERM 39
4. Roberto Rinaldi and Carlo Santini
Italy: Two Foreign Exchange Crises 55
5. Andre de Lattre
The Single Currency As A Stabilizing Factor In International Relations:
A French View 95
6. Kaspar Villiger
EMU And The Swiss Franc 107
7. Franco Modigliani and Hossein Askari
Exchange Rate And Economic Policy In Three Regional Blocs: The EU,
The GCC And The CFA 115
PART III - THE MEXICAN CRISES AND THE TEQUILA EFFECT 147
8. Frederic S. Mishkin
The Mexican Financial Crisis Of 1994-95: An Asymmetric Information
Analysis 149
9. Roque B. Fernandez and Liliana Schumacher
The Argentine Banking Panic After The "Tequila" Shock: Did
"Convertibility" Help Or Hurt? 183
PART IV - THE TRANSFORMING ECONOMIES 209
10. Jacob Nell
The Consolidation Of Russian Banking: The Big Picture 211
II. JosefTosovskY
Managing Financial Turbulence: Czech Experience 227
12. Lajos Bokros
Stabilization Without Recession: The Succcess Of A Long Awaited
Financial Adjustment In Hungary 241
PART V - SPECIAL TOPICS: PUBLIC DEBT AND WAR 261
13. Daniel Gros
Self-Fulfilling Public Debt Crises 263
14. Salem Abdul Aziz Al-Sabah
The Impact Of The Iraqi Invasion On The Kuwaiti Banking And Financial
System: Lessons Learned From A Financial Crisis 281
PART VI - THE ROLE OF THE IMF 297
15. Age F. P. Bakker and Arend 1. Kapteyn
Financial Crisis Management And The Role Of The IMF: 1970-1995 299
16. Philippe Maystadt
The Role Of The International Monetary Fund In Promoting Stability In
The Global Economy 323
PART VII - SUMMARY AND CONCLUSIONS 335
Scheherazade S. Rehman 337
INDEX 343
Acknowledgements
I dedicate this book to the special people in my life whose love and support made
this possible: Liza, Richard and Roxolana and more specially to the little ones: Janana,
Faazal, Shiva, Darya and more recently Jehaan.
lowe a debt of gratitude to the contributors who made time in their busy schedules
to address the issues raised by regional financial crisis.
I would specially like to thank Professor Peter Gray (Rutgers University) for
providing the idea for this publication and for his on-going support. I would also like to
thank Professor Geza P. Lauter (George Washington University) whose continuous
support has been indispensable and Professor Hossein Askari (George Washington
University) for his advice.
Levent Ozbilgin's (George Washington University) editing assistance, research
and technical support was extremely helpful as was Susen Rakibe Musal's (George
Washington University) editing assistance.
I am indebted to Zachary Rolnik (Kluwer Academic Publishers) for his enthusiasm
and support over the years.
Finally, I am grateful to the George Washington University, the School of Business
and Public Management and the International Business Department for their support.
Contributors
ABOUT THE EDITOR
Dr. Scheherazade S. Rehman is Assistant Professor of International
Finance and the Director of the Joint International MBA-MA Degree Programs at
The George Washington University in Washington D.C. Prior to that she served as a
foreign exchange and money market trader. She has served as an advisor to The
World Bank, OPIC, USAID, numerous governments and multinational corporations.
Dr. Rehman is also a senior partner/consultant of International Consultants Group, a
Washington-based international financiallbusiness management consulting company.
She has written several books, including, The Path To European Economic
and Monetary Union (Boston: Kluwer Academic Publishers, 1997). She has also
written extensively on central banking and global monetary systems, international trade
and [mance, [mancial sector development in transitional economies, and the euro.
ABOUT THE CONTRIBUTORS
Dr. Hossein Askari is currently Global Management Research Professor
and Director of the Institute for Global Management Research at The George
Washington University. He served on the IMF's Executive Board between 1979-81
and has advised a number of institutions including the United Nations, the OECD,
The World Bank, The International Finance Corporation, the Ministry of Finance of
Saudi Arabia, the Gulf Cooperation Council and various international oil companies.
Dr. Age F. P. Bakker is Deputy Director of the Central Bank of The
Netherlands and Professor of Monetary Issues and Banking at the Vrije Universiteit
x CONTRIBUTORS
of Amsterdam. He is a crown-appointed member of the Social and Economic Council
in The Netherlands and is a member of a number of policy committees within the
framework of the Bank for International Settlements (BIS), the European Monetary
Institute (EMI) and the OECD. During his employment at the central bank (since
1976) he has worked on temporary leave at the International Monetary Fund.
Dr. Lajos Bokros is currently a Senior Adviser at Finance and Private
Sector Development VP, The World Bank. Dr. Bokros was Minister of Finance of
Hungary from 1995-96. He was also the Chairman and CEO of Budapest Bank, Ltd.
from 1991-95 and Chairman of the Board of the Budapest Stock Exchange from
1990-95. Between 1990-91 he was a member of the Board of Directors of the State
Property Agency (privatization agency). He also served as the Director of the Capital
Markets Department and member of the Board of the National Bank of Hungary
(NBH) (1989-91).
Andre de Lattre was Deputy Governor of the Bank of France from 1966 to
1974 and Chairman and Chief Executive Officer of Credit National from 1974 to
1982. He became the World Bank Special Representative for IDA negotiations in
1983 and the Managing Director of The Institute of International Finance, Inc. from
1984 to 1986. From 1989-1996 he served as the Chairman of Banque Franryaise de
Service et de Credit. Mr. De Lattre was Professor of Economics at the Ecole
Nationale d' Administration (1955-56) and at the Institut d'Etudes Politiques de Paris
(1958-83).
Dr. Roque B. Fernandez is the current Minister of Finance of Argentina.
Previously, he has been the President of the Central Bank of Argentina (1991-1996).
He also currently teaches macroeconomics at CEMA (Centro de Estudios
Macroeconomicos de Argentina) and has taught in the Departments of Economics at
the University of Southern California, Florida International University, and
Universidad Catolica de Chile.
Dr. Daniel Gros is currently a Senior Research Fellow and Director of the
Economic Policy Programme at the Centre for European Policy Studies (CEPS) in
Brussels. He is also a Visiting Professor at the University of Frankfurt's Department
of Economics. Dr. Gros has served as an Economist at the International Monetary
Fund.
Dr. Arend J. Kapteyn is an economist at the Monetary and Economic
Policy Department of the Central Bank of The Netherlands, particularly responsible
for IMF-affairs. In his work, he has been actively involved in discussions on the
expansion of the General Arrangements to Borrow and the resolution of sovereign
liquidity crises. Prior to his employment at the central bank he worked for the
Economic Strategy Institute in Washington D.C. and Fokker Aircraft in The
Netherlands.
FINANCIAL CRISIS MANAGEMENT IN REGIONAL BLOCS xi
Dr. Philippe Maystadt is the current Vice-Prime Minister (since 1995),
Minister of Finance (since 1988) and Minister of Foreign Trade of Belgium (since
1995) and Chairman of the Interim Committee of the IMF (since 1993). He is also
currently a part-time Professor of Law at the Catholic University, Louvain (since
1989). He has previously served, among others, as the Chairman of the Council of
Governors of the EBRD, the First Vice-Chairman of the Bureau of the Boards of
Governors of the African Development Bank Group, Chairman of the Council of
Ministers of Economy and Finance of the European Community, Chairman of the G-
10 Ministers of Finance, and Belgium Minister of Economic Affairs. In September
1990, Vice-Prime Minister Maystadt was awarded the title of "Finance Minister of
the Year" by Euromoney magazine.
Dr. Frederic S. Mishkin is currently the A. Barton Hepburn Professor of
Economics at the Graduate School of Business, Columbia University and Research
Associate at the National Bureau of Economic Research. He was formerly Executive
Vice-President and Director of Research at the Federal Reserve Bank of New York
and Associate Economist to the Federal Open Market Committee.
Dr. Franco Modigliani is Institute Professor Emeritus at the Massachusetts
Institute of Technology (MIT). Professor Modigliani was the recipient of the 1985
Nobel Memorial Prize in Economic Science. Also in 1985, he received the James R.
Killian Faculty Achievement Award from MIT. He is a member of the National
Academy of Sciences and a member of the American Academy of Arts and Sciences.
He is past president of the Econometric Society, the American Economic Association
and the American Finance Association, and honorary President of the International
Economic Association.
Jacob Nell was the former Assistant Editor of the Central Banking journal
(U.K.) and is currently employed by H.M. Treasury. Mr. Nell has also served as a
Consultant to the Economic Expert Group of the Russian Ministry of Finance. He has
edited a credit rating presentation of the Russian Federation (summer 1996),
organized and edited a special issue of Central Banking on the Central Bank of
Russia, and written widely on central banking, monetary policy and financial
regulation, including editing reference books on international financial institutions
and financial regulators.
Dr. Howard Reed was the Special Counsel for Finance and Investment
Policy to the United States Trade Representative (USTR), the Executive Office of the
President during the 1st term of the Clinton Administration between 1993-1996. He
has represented the USTR at the World Bank, IMF and on the Board of the US
Export-Import Bank. Dr. Reed was previously a Professor at the University of Texas
at Austin (1977-85).
Dr. Roberto Rinaldi is currently the Head of the Monetary Analysis Office
in the Monetary and Financial Sector at the Bank ofitaly. He joined the Bank ofitaly
xii CONTRIBUTORS
in 1985. Dr. Rinaldi was a member of a working group at the Band ofInternational
Settlements (BIS) dealing with issues related to monetary policy coordination among
EEC countries (1986-87) and has served as a monetary policy and research expert in
the IMF programs providing technical assistance to East European Countries (1992-
95).
Sheikh Salem Abdul Aziz AI-Sabah is the current Governor of the Central
Bank of Kuwait (since 1986). He was internationally recognized for his leadership
of the Central Bank of Kuwait (from exile) during the Iraqi occupation and was a
central figure in the reconstruction of the banking and financial sector during the
period following the liberation of Kuwait. In 1988, he was awarded the title of
"Governor of the Year" by Euromoney magazine.
Dr. Carlo Santini is the Central Manager for Economic Research at the
Bank of Italy. In addition, he also has supervision over the Foreign and the Money
and Financial Markets Departments. He serves as Governor's Alternate on the Bank
of International Settlements (BIS) Board and attends the Council of the European
Monetary Institute. He is a member of the "Euro-currency Standing Committee" and
of the Board of the Ufficio Italiano dei Cambi (Italian Exchange Office).
Dr. Liliana Schumacher, J.D. is Assistant Professor of International
Finance and Banking at The George Washington University. She was previously
Principal Economist in the Research Department at the Central Bank of Argentina
where she was active in the study and design of financial regulations. She has written
extensively on international banking; risk management, fiscal policy, Latin American
banks and international financial markets.
Dr. Dr. h.c. Professor Hans Tietmeyer is the current President of the
Deutsche Bundesbank. He is also the Chairman of the G-I0 central bank governors,
the Chairman of the EC Economic Policy Committee, Chairman of the OECD
Working Party on Positive Adjustment Policies, Chairman of the EC Monetary
Committee and Chairman of the Board of the "Deutsche Bundesstifung Umweit"
(German Federal Foundation for the Environment). He is the bearer of the Knight
Commander's Cross (Badge and Star) of the Order of Merit of the Federal Republic
of Germany.
Dr. Josef Tosovsky is the current Governor of Czech National Bank (since
1989). He is a member of the Academic Board of the Prague School of Economics, a
member of the advisory body to the Rector of Charles University in Prague and a
member of the CERGE Institute's Board of Directors. In 1993, Dr. Tosovsk)i was
awarded the title of "Central banker of the Year" by Euromoney magazine. In 1994,
the European Business Press Federation elected him "European Manager of the
Year." In addition, Dr. Tosovsk)i received, as the first laureate at the Masaryk
University in Brno, the Karl Englis Prize.
