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This paper shows that exchange rate alignments are also used for redistribution of income among different groups. The heterogeneous impacts of stabilisation policies lead to formation of various coalitions throughout the evolution of stabilisation programmes. These coalitions can produce unsustainable economic policies at the expense of other groups. The model categorises these various groups with respect to their shares in total production of tradables and non-tradables. An increase in the relative prices of non-tradables benefits the poor more than the rich and middle classes. In addition to the poor, the rich benefit from unsustainable macroeconomic polices by lending to the government and eventually escaping the cost of stabilisation in the long run.

Compares crises in the global economy stemming from events in Mexico and Turkey in 1994 and Asia in 1997, which occurred despite fiscal equilibrium and low inflation; suggests supranational or international regulatory initiatives. View that crises has underregulated short-term capital flows as the common factor.

The process of neoliberal globalization has been associated with successive financial crises in the context of the 1990s, raising serious doubts concerning the sustainability of rapid growth in an environment of uncontrolled movements of short-term capital. The aim here is to probe into the origins of the financial crises in the semiperiphery through a structured comparison of three key recent crises in the world economy: the Mexican & Turkish crises of 1994 & the Asian crises of 1992. While the magnitude of the capital flows & the dimensions of the subsequent crises are strikingly different, there are nonetheless important elements common to all three cases studied. One involves the overdependence on short-term financial flows in a setting characterized by premature capital account liberalization in the absence of adequate regulation. It is striking that, contrary to the conventional International Monetary Fund wisdom, financial crises have occurred in spite of fiscal equilibrium & low inflation. The recent financial crises highlight a paradoxical situation: the need for effective regulation at a time when the capacity of the nation-state to undertake such regulation is severely circumscribed. Hence, the establishment of an effective regulatory framework at the global level emerges as a major requirement if successive financial crises, with significant economic & social cost, are to be avoided in the future. 2 Tables, 1 Appendix. Adapted from the source document.