The Neglected Impact of Non-Economic Factors on the Development of Financial Crises and Governmental Responses

Foreword by Donald J. Puchala, Ph.D. This book considers how a financial crisis develops and how a government responds to a financial crisis. In an attempt to shed light on these questions, it closely examines two cases: Mexico during the Mexican Peso Crisis of 1994 to 1995 and Malaysia during the Asian Financial Crisis of 1997 to 1998. Smer argues that economic explanations of financial crises fail to fully answer these questions since they do not pay enough attention to non-economic factors stemming from a county's political, societal, institutional and external contexts. The examination of the Mexico and Malaysia cases illustrates this argument and shows that multiple non-economic factorsdomestic political, societal, institutional, psychological, and ideological factors as well as external influences and pressurescan play roles as significant as economic factors. Interplay of these non-economic factors with economic ones brought these financial crises and shaped the Mexican and the Malaysian governments' policy behaviors.