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

Cohen, Joseph N. (2008): Managing the Faustian bargain: monetary autonomy in the pursuit of development in Eastern Europe and Latin America.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: capital market liberalization; monetary autonomy; financial policy; financial system stability
• Subjects: F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements; F - International Economics > F5 - International Relations, National Security, and International Political Economy > F59 - Other; F - International Economics > F0 - General > F02 - International Economic Order and Integration; F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions

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