Xiaoke Zhang

The Political Economy of Basle II: The Costs for Poor Countries

The financial crises of the 1990s triggered many changes to the design of the international financial system. We use the formulation of the new Basle capital accord for banks (B-II) to illustrate that, while much affected, developing countries have had very little influence on this so-called new international financial architecture. We argue that B-II has been formulated largely to serve the interests of powerful market players, with developing countries being left out. At the same time, we demonstrate that B-II is likely to raise the costs and reduce the supply of external financing for developing countries in particular. Furthermore, and importantly, B-II may well increase the pro-cyclicality of external financing, an unfortunate outcome given that developing countries already face much volatility in terms of capital flows. Overall, while B-II may indeed compensate for a range of weaknesses of Basle I, the exclusionary policy process and costs which B-II imposes on developing countries require a re-think of the way in which crucial elements of financial governance, such as the Basle capital accords, are developed and implemented.

The changing state-market condominium in East Asia : Rethinking the political underpinnings of development

This article addresses the long-running debate concerning the changing nature of state– society relations in the development process in East Asia and elsewhere in the developing world. It affords a critical re-examination of the developmental state model that has become central to the study of the politics of economic growth and achieved the status of a dominant paradigm in international policy circles. 1 The relationship between state institutions and private market agents, as portrayed in the model, is viewed as one of two analytically distinctive entities—a state– market dichotomy that obscures as much as it illuminates the political underpinnings of development. Recent revisionist efforts have critically reviewed the developmental state claims about state– society relations and provided a more nuanced view of the complex and interdependent interaction between states and markets that has shaped industrialisation policies in East Asia. 2 This article argues that while the revisionist efforts have correctly emphasised the importance of state –market interactions in the development process there is still a further and crucial conceptual step to take in order to move beyond the developmental state thesis and to overcome the conceptual constraints of the state– market distinction. The concept of the state– market condominium is proposed as an alternative approach to the political economy of development and argues that the experience of East Asia can be more fruitfully theorised if states and markets are viewed as an integrated ensemble of governance. This state –market condominium approach has been articulated within the national setting of industrial policy management and financial market governance in major East Asian newly industrialising economies over the past two decades. The value added of the approach can be demonstrated by thinking in terms of opportunity cost, that is of not employing the approach: the distorted view of the political economy which results from employing the existing concepts in the developmental state literature. The central claim is that the state– market condominium is greater than its state –market/public –private parts and that the outcomes in terms of governance are significantly different from the preferences of

Political structures and financial liberalization in pre-crisis East Asia

East Asian economies differed dramatically in their vulnerability to the financial shocks of 1997–98. In the current literature on the Asian crisis, one key factor commonly adduced to explain the uneven crises is different national approaches to liberalizing the financial market. While extant analyses have yielded important insights into the correlation between divergent liberalization patterns and uneven crises, they have failed to deal with the crucial question of why East Asian economies diverged in their respective paths to financial market liberalization. To account for differences in liberalization approaches, this article develops an institutional explanation of financial policy choices. It posits that variations in liberalization patterns stem from fundamental differences in the organizational structures of the private sector, the bureaucracy, and the party system that shape the economic interests and political behavior of social groups and state agencies in the policy-making process. In making this argument, the article focuses on Korea, Singapore, Taiwan, and Thailand, the four major East Asian economies that pursued different liberalization strategies during the 1980s and 1990s and had contrasting performance in the recent financial crisis. It argues that cross-national differences in the above-mentioned domestic political structures within the four economies are the primary sources of their divergent liberalization approaches and outcomes, which, in turn, impacted financial stability to differing degrees and generated varying abilities to withstand external shocks.

Financial Market Governance in Developing Countries

This article presents a critique of the prevailing IMF/World Bank paradigm for financial market governance in developing countries that converges on the restrained role for the state, the neoliberal emphasis on self-governance, and the pursuit of market efficiency. It argues that the largely positive terms in which the governance discourse is couched have obfuscated the political dimensions that underlie the limitations of current efforts to improve the functioning of national financial systems in developing countries. It seeks to explore the political underpinnings of market governance that manifest themselves in the primary role of the state in market destruction and creation, the politically sustainable balance of power between private interests and public authorities, and the distributive justice of institutional reforms. Drawing upon recent national experiences with financial reforms and crises in developing countries, the article highlights these three dimensions as the essential normative constructs of effective financial policy management and market governance in developing countries.

International financial governance under stress : global structures versus national imperatives

List of figures List of tables List of contributors Acknowledgements Introduction: global market integration, financial crises and policy imperatives Geoffrey R. D. Underhill and Xiaoke Zhang Part I. Financial Globalisation and Policy Responses: Concepts and Arguments: 1. Reform of the international financial architecture: what has been written? Jonathan Story 2. Costs and benefits of financial globalisation: concepts, evidence and implications John Williamson 3. Capital controls: the neglected option Benjamin J. Cohen 4. Global structures and political imperatives: in search of normative underpinnings for international financial order Geoffrey R. D. Underhill and Xiaoke Zhang Part II. Globalisation, Financial Crises and National Experiences: 5. Crisis consequences: lessons from Thailand Pasuk Phongpaichit and Chris Baker 6. The politics of financial reform: recapitalising Indonesias banks Richard Robison 7. South Korea and the Asian crisis: the impact of the democratic deficit and OECD accession Stephen L. Harris 8. Currency crises in Russia and other transition economies Vladimir Popov 9. Capital account convertibility and the national interest: has India got it right? Vijay Joshi 10. Learning to live without the Plan: financial reform in China Shaun Breslin 11. The Asian financial crisis and Japanese policy reactions Masayuki Tadokoro Part III. Private Interests, Private-Public Interactions and Financial Policy: 12. Private capture, policy failures and financial crisis: evidence and lessons from South Korea and Thailand Xiaoke Zhang and Geoffrey R. D. Underhill 13. Governance, markets and power: the political economy of accounting reform in Indonesia Andrew Rosser 14. The private sector, international standards and the architecture of global finance George Vojta and Marc Uzan Part IV. Building the New Financial Architecture: Norms, Institutions and Governance: 15. The legitimacy of international organisations and the future of global governance Jean-Marc Coicaud and Luiz A. Pereira da Silva 16. The G-7 and architecture debates: norms, authority and global financial governance Andrew Baker 17. Bail-outs, bail-ins and bankruptcy: evolution of the new architecture Manmohan S. Kumar and Marcus Miller Conclusion: towards the good governance of the international financial system Geoffrey R. D. Underhill and Xiaoke Zhang Index.

Political Parties and Financial Development: Evidence from Malaysia and Thailand

Drawing upon theoretical studies on the policy impact of political parties, this article address cross-national differences in financial policy choice and capital market development in Malaysia and Thailand. An explanatory approach that considers inter-party organisational dimensions in tandem with intra-party structural attributes shows that financial and regulatory policies have varied significantly between Malaysia and Thailand in response to the national configurations of political parties. The different patterns of policy choices, in turn, have led to varied capital market structures and development trajectories. Thus the theoretical literature on the political economy of financial capitalism in developed countries, which stresses the importance of domestic political institutions, has implications for the political underpinnings of financial market reforms in emerging market countries.

Political institutions and central bank autonomy in Taiwan

Extant studies of the political economy of post-1949 Taiwan have credited the powerful and autonomous Central Bank of China (CBC) for exerting shaping influence over the trajectory of financial and industrial developments. While considerable research has been done on the origins and political sources of central bank autonomy under authoritarian rule, virtually no systematic efforts have been made to explore how the CBC has been able to retain its policy-making independence in the democratic era. This article attempts to fill in this significant analytical gap and to explain how the institutional status of the central bank has changed over the past two decades. It argues that the ability of the CBC to sustain its autonomy has derived from crucial political and institutional variables rather than from the independent causal weight of central bank laws. These variables—the policy alliance of the banking community, the institutional endowment of the macro-economic bureaucracy and the broad structure of interests and power within the KMT—have constituted the primary determinants of changes in the behaviour of central bankers in the transition to democratic rule.