Governing Finance

Governing Finance: East Asia's Adoption of International Standards

Andrew Walter
Copyright Date: 2008
Edition: 1
Published by: Cornell University Press
Pages: 256
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  • Book Info
    Governing Finance
    Book Description:

    The international financial community blamed the Asian crisis of 1997-1998 on deep failures of domestic financial governance. To avoid similar crises in the future, this community adopted and promoted a set of international "best practice" standards of financial governance. The G7 asked specialized public and private sector bodies to set international standards, and tasked the International Monetary Fund and the World Bank with their global dissemination. Non-Western countries were thereby encouraged to emulate Western practices in banking and securities supervision, corporate governance, financial disclosure, and policy transparency.

    In Governing Finance, Andrew Walter explains why Indonesia, Malaysia, South Korea, and Thailand-key targets and test cases of this international standards project-were placed under intense pressure to transform their domestic financial governance. Walter finds that the depth of the economic crisis, and more enduring aspects of Asian capitalism, such as family ownership of firms, made substantive compliance with international standards very costly for the private sector and politically difficult for governments to achieve. In spite of international compliance pressure, the result was varying degrees of cosmetic or "mock" compliance. In a book containing lessons for any agency or country attempting to implement lasting change in financial governance, Walter emphasizes the limits of global regulatory convergence in the absence of support from domestic politicians, institutions, and firms.

    eISBN: 978-0-8014-5939-9
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. List of Figures
    (pp. vii-viii)
  4. List of Tables
    (pp. ix-x)
  5. Acknowledgments
    (pp. xi-xii)
  6. Abbreviations
    (pp. xiii-xviii)
  7. Introduction: International Standards and Financial Governance
    (pp. 1-7)

    The financial contagion that spread from Thailand in mid-1997 to the rest of Asia and then on to Brazil, Russia, and finally to the developed world’s financial centers was a major shock to the global economy. It was also a shock to global political elites and a watershed in the long-running debate about the need for reform of the global financial architecture. Faced with a crisis that destabilized some of the world’s most rapidly growing countries, governments in the major developed countries responded by launching one of the most ambitious governance reform projects in living memory. Its main objective was...

  8. 1 The Asian Crisis and the International Financial Standards Project
    (pp. 8-28)

    This chapter explains the impact of the Asian crisis of 1997–98 on the international financial standards regime that emerged promptly on its heels. Although some international standards existed before 1997, the crisis played a key role in focusing international attention on financial supervision failures in major developing countries and in promoting the idea that the dissemination of and compliance with international best practice standards was the solution. Thus, the crisis was a crucial factor in the emergence of the international standards project. Part of the reason for this was that the crisis helped to entrench the intellectual dominance of...

  9. 2 A Theory of Compliance with International Standards
    (pp. 29-49)

    The previous chapter argued that the rise of regulatory neoliberalism and the associated international standards project raises important practical challenges for many countries, especially developing ones. This chapter has two primary objectives. First, it asks how we should understand compliance in the world economy and how this relates to the concept of convergence. Second, it outlines a theory of what determines compliance and noncompliance with international standards.

    Existing theories of compliance, whether they emphasize ideational factors (Hall 2003) or international market or institutional forces (Jayasuriya 2005; Pirie 2005; Soederberg 2003), have often argued that states and private market actors will...

  10. 3 Banking Supervision in Indonesia
    (pp. 50-77)

    After a deep economic and political crisis over 1997–98, the Government of Indonesia (GOI) portrayed the goal of compliance with international banking supervision standards as a core plank of its reform strategy for the banking sector and the financial regulatory framework. More broadly, given Indonesia’s still bank-dominated financial system, banking supervision has been a key plank of the neoliberal reform project in Indonesia (Hadiz and Robison 2005). Fundamental failures in banking regulation and supervision were generally recognized to have been an important factor in the depth of the crisis. Furthermore, given the extensive nationalization of the banking sector that...

  11. 4 Corporate Governance in Thailand
    (pp. 78-98)

    This chapter evaluates Thailand’s compliance with international corporate governance standards since 1997. At the outset of the crisis, there was no single set of recognized international standards in corporate governance. The G7-designated standard setter in this area, the OECD, set up a task force only in April 1998 and issued the Principles of Corporate Governance (PCG) in May 1999. Various other bodies in the meantime were competing to fill this vacuum, including the International Corporate Governance Association (ICGN), the Commonwealth Association, the (U.S.) Business Roundtable, as well as various national stock exchanges (notably those in the United States and the...

  12. 5 Banking Supervision and Corporate Governance in Malaysia
    (pp. 99-125)

    Malaysia is a rather different case to Indonesia and Thailand. Of the four countries most affected by the crisis, only Malaysia managed to avoid IMF intervention and conditionality. Even so, Malaysia’s government joined its neighbors in committing itself to convergence upon international best-practice standards in spite of its reputation for macroeconomic unorthodoxy. In this chapter, I assess Malaysian compliance outcomes in the two areas covered in the previous two chapters, banking regulation and corporate governance.

    There are other respects in which Malaysia differs from Indonesia and Thailand. First, Malaysia’s British colonial legacy and common law legal tradition would lead some...

  13. 6 Banking Supervision, Corporate Governance, and Financial Disclosure in Korea
    (pp. 126-165)

    In this chapter, I complete the assessment of compliance with international standards in the largest of the four main crisis-hit Asian economies, South Korea. I extend the scope of assessment even wider than in the previous chapter to include standards in banking supervision, corporate governance, and accounting.

    More than any of the other countries after the crisis, Korea was most vigorously committed to compliance with international financial standards and to convergence upon regulatory neoliberalism. A new government headed by Kim Dae-Jung put together an economic reform team whose neoliberal credentials were strong and which enjoyed greater political support than in...

  14. 7 Practical and Theoretical Implications
    (pp. 166-184)

    This study began by asking three main questions. These are: To what extent do Asian countries comply with international regulatory standards? What explains compliance and noncompliance? And to what extent is mock compliance a sustainable strategy for developing countries and private sector actors? In this chapter, I provide answers to these questions by drawing on the detailed assessment of compliance outcomes in four crisis-hit Asian countries that is provided in the main body of this book.

    The empirical chapters demonstrated that in Indonesia, Korea, Malaysia, and Thailand there has been a transition toward regulatory neoliberalism since 1997. In all cases,...

  15. Appendix: Key International Standards and Codes
    (pp. 185-188)
  16. Notes
    (pp. 189-210)
  17. References
    (pp. 211-226)
  18. Index
    (pp. 227-236)