Managing the Faustian bargain: monetary autonomy in the pursuit of development in Eastern Europe and Latin America

Joseph Cohen ()

MPRA Paper from University Library of Munich, Germany

Abstract: International capital markets have grown to be a major force shaping today's world economy, presenting a range of opportunities and threats to developing countries. Capital market liberalization created large pools of much-needed capital that developing economies could access, but tapping these funds often came at the cost of increasing economic vulnerability, lost policy-making autonomy and a range of structural distortions that could ultimately undermine development in the long-term. As the potential threats of integrating one's country into global capital markets has become apparent, countries have devised a range of strategies to buffer themselves from the strains of global capital markets. This article considers the pursuit of monetary autonomy with reference to a typology of the strategies that policy-makers can use to open their markets to international capital, while simultaneously attempting to buffer themselves from the economic and political pressures of global financial integration. Such autonomy can be purchased in a myriad of ways, and a discussion of the choices facing Latin American and Eastern European countries is presented.

Keywords: capital market liberalization; monetary autonomy; financial policy; financial system stability (search for similar items in EconPapers)
JEL-codes: F02 F32 F33 F59 (search for similar items in EconPapers)
Date: 2008-10-28
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