The factors determining financial crisis in developing countries and international financial system

IV ABSTRACT THE FACTORS DETERMINING FINANCIAL CRISIS IN DEVELOPING COUNTRIES AND INTERNATIONAL FINANCIAL SYSTEM Tolga KABAŞ M.A. Thesis, Department of Economics Supervisor: Associate Professor Murat DO?ANLAR January 2004, 126 pages During 1990s financial liberalization and capital account openning which took place at weak institutional environments of emerging markets, speculative short term capital flows and inadequate implementation of the two important components of democracy transparency and accountability are mentioned as major determinants of financial crisis. Weak banking regulation/supervision systems of developing countries caused banks to take excessive risks and deterioration of their balance sheets. The speculative attacks to national currencies during this period produced financial crisis by causing banktrupcy of banks and firms which had weak balance sheets. Due to different institutional debt structures, developed countries are not affected from financial crises as much as developing countries. After the Asian crises in 1997, reforms started at international financial system. The reforms led by G-7 focused on weak institutional structures of developing countries by ignoring the regulation of short term speculative capital flows as an important factor determining financial crises. Keywords: Developing Countries, Financial Crises, Short Term Capital Flows, Weak Institutions, Banking Regulation/Supervision Systems.