Crises in the periphery of the global system

Crises struck the periphery of the global system in the 1980s. Deregulation and monetary instability left national governments and central banks defenseless in responding to increasingly large international capital flows followed by equally sizable capital outflows; growth in many emerging market countries had come at a heavy cost. Crises for these countries included the “Lost Decade†in Latin America (1982–90), the Mexican crisis of 1994–95, the Asian crisis of 1997–98, and the “Synchronous Downturn†of 2002. Low growth in Latin America was particularly disheartening. NAFTA’s forced opening of the Mexican financial sector to foreign institutions shifted credit flows to export sectors that could borrow and repay in strong currencies, and the fall in domestic credit and in the production of goods and commodities for domestic consumption exacerbated Mexico’s position as a client state tied to its northern neighbor.