Financial Sector Reforms in Developing Countries with Special Reference to Egypt

Levy Econmics Institute Working Paper No. 383

28 Pages Posted: 11 Aug 2003

See all articles by Philip Arestis

Philip Arestis

University of Cambridge - Department of Land Economy; Universidad del País Vasco (UPV/EHU)

Date Written: July 2003

Abstract

Financial reforms, and financial liberalization in particular, have been at the root of many recent cases of financial and banking crises. In several countries financial reforms allowed real interest rates to reach levels exceeding 20 percent per annum in some cases; in other cases, banking and financial crises led to currency crises. National governments either abandoned attempts at implementing financial liberalization (some countries even reimposed controls) or were forced to intervene by nationalizing banks and guaranteeing deposits. This paper draws on this experience to show that the main cause of these crises is the application of a theoretical framework that is predicated on a number of assumptions that are problematic and based on weak empirical foundations. Consequently, it should be no surprise that the reforms were often unsuccessful and in many cases led to severe financial crises. We will also argue that the case of Egypt is particularly interesting in this regard, since although financial reforms have been enacted, the experience has been rather different: There has been no accompanying financial crisis.

Keywords: Financial reforms, financial crises, developing countries, Egypt

JEL Classification: N20, N25

Suggested Citation

Arestis, Philip, Financial Sector Reforms in Developing Countries with Special Reference to Egypt (July 2003). Levy Econmics Institute Working Paper No. 383. Available at SSRN: https://ssrn.com/abstract=425821 or http://dx.doi.org/10.2139/ssrn.425821

Philip Arestis (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Universidad del País Vasco (UPV/EHU)

Barrio Sarriena s/n
Leioa, Bizkaia 48940
Spain

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