Explaining Styles of Financial Market Opening in Chile, Mexico, South Korea, and Turkey

This study examines financial opening in middle-income countries and identifies the variables that shape its basic features. We find that the widely noted increase in international capital mobility has not constrained financial policy-making equally across states. A country's economic conditions and need for external funds determine its government's bargaining power vis-à-vis international actors and domestic groups with respect to financial policy. Governments with low bargaining power, because domestic economic conditions are poor or need for external funds is high, must open financial markets completely to attract or retain capital. Conversely, governments with high bargaining power may be able to retain some controls on capital flows or deny foreign banks access to domestic markets and still have access to capital.
To explore these issues, this article looks at opening in Chile, Mexico, South Korea, and Turkey. These countries opened their financial systems in very different ways. Turkey and Mexico liberalized their markets almost completely, whereas Korea (1980–98) kept barriers to capital entry and Chile (1991–98) retained barriers to capital exit. Although economic conditions explain the basic style of financial opening, they cannot account for the residual barriers that persist in mostly open markets or the pace and timing of reforms. Domestic political factors, particularly, the interests of leaders and key social groups as well as their relative bargaining power, help to explain these variables. The paper develops a typology of styles of financial opening to encourage systematic thinking about the origins and consequences of differences in style.     

How soon is now? The effects of the IMF on economic reforms in Latin America

This study assesses the effects of IMF loans on economic liberalization in Latin America. Specifically, we are interested in whether the Fund receives greater cooperation from Latin American borrowers in the initiation of some economic reforms over others. Using a two-stage treatment effects model as well as panel-corrected standard error (PCSE) regression for 15 Latin American countries from 1980 to 2003, we find that IMF participation tends to lead to greater trade and capital reforms and less reform in privatization. These relationships are tempered by the country??s relationship with the United States along with domestic group pressures.     

Global Credit Markets,Political Violence,and Politically Sustainable Risk Premia

How do international financial conditions affect civil unrest? Existing studies examine the domestic economic roots of political violence but say little about the role of external financial conditions. We explore the interactions between international lending, government policy, and domestic unrest. In particular, we note that because of sovereign risk and defensive lending dynamics, credit ratings and interest rate premia are endogenous to expectations about civil violence. We test these claims using instrumental variables techniques and daily data on sovereign bond yield spreads, credit ratings, and episodes of civil violence in 59 developing countries from 1990 through 2004. After correcting for endogeneity, we find that exogenous increases in the price of foreign capital are robustly associated with increased odds of civil conflict. Primary commodity dependence, low economic growth, and poverty can also increase the odds of civil conflict by reducing access to foreign capital.     

He who pays the piper calls the tune: Credit rating agencies and multilateral development banks

Multilateral development banks (MDBs) have proved to be one of the most popular and enduring forms of international organization ever created, in large part because of their unique financial model. MDBs raise most of the resources needed for operations from international capital markets rather than government budgets, which greatly increases their financial capacity and attractiveness to member governments. However, this model has a trade-off: MDBs must pay close attention to the perceptions of bond investors, who have little interest in development goals. This paper explores the influence of credit rating agencies (CRAs) on MDB operations, based on an analysis of the methodologies used by CRAs to evaluate MDBs and interviews with MDB financial staff and CRA analysts. The study demonstrates that the methodology used by Standard and Poor’s seriously undervalues the financial strength of MDBs, limiting their ability to pursue their development mandate. These findings suggest that MDB dependence on capital market financing may weaken the ability of major shareholder governments to fully control MDB activities.     

Private-sector development in a transition economy: The case of Vietnam

Since Vietnam introduced its Doi Moi reform policy in 1986, the development of the private sector has been a main policy concern for the government and the ruling Communist Party. The main development challenge for Vietnam is how to sustain economic growth and reduce poverty as the labour force continues to expand. It is envisaged that the private sector will play a major role in that respect. This article looks into the issue of whether the private sector can live up to widespread expectations. High and stable economic growth indicates that reforms have been consistent but also that private-sector initiatives have moved ahead of formal institutional changes. Private-sector development is new in Vietnam and starts from a low level. The public and foreign investment sectors are major players compared to the domestic private sector, which comprises many small firms. Poverty reduction has been impressive but it is only now that private-sector development is becoming an important contributor. Stemming the growth in inequality remains a challenge where the private sector's contribution to increasing public revenue has yet to materialise.     

Policy Lessons from the Eurozone Crisis

The current European crisis has shed light on several weaknesses and the institutional incompleteness characterizing the euro area. The manifestation of Europe's fragility was preceded by a large build-up of debt in the private sector, associated with national current account divergences and the deterioration of competitiveness particularly of the euro periphery countries. With the economic situation deteriorating, private sector debt became less credible, contaminating banks’ balance sheets and placing a heavy burden on governments. A sovereign-bank vicious circle emerged: on the one hand, with banking risk translating into higher sovereign risk because of the governments’ guarantor role and, on the other hand, with the deterioration of government's creditworthiness affecting the banking systems through banks’ sovereign bond holdings. In principle, this negative feedback can be stopped by breaking one of the channels of transmission. A banking union at the European level is proposed as one solution.     

Systemic Explanations, Divergent Outcomes: The Politics of FinancialLiberalization in France and Spain

This article challenges the adequacy of prevalent market-driven models of regulatory change, and more specifically, the stipulation that international market integration will lead governments undertaking financial liberalization in formerly interventionist states to carry out adequate market reforms. It does so through an analysis of financial regulation in two European countries: France and Spain. The article offers an integrated historical perspective on regulatory change which suggests that the market-driven convergence thesis does not adequately capture the political dynamic behind financial interventionism and liberalization in the two countries. The introduction of dirigisme and its later-day abandonment were driven less by the "state vs. market” dynamics emphasized in much of the literature than by macroeconomic policy choices on the part of postwar elites. Focusing on similarities and differences in the timing and pattern of reform, the article argues that dirigisme was abandoned in France and Spain not because of changing sectoral pressures or the lack of viability of external controls, but because it raised the political costs of monetary austerity for elected authorities. This link between regulatory choices and the politics of macroeconomic adjustment has implications that are likely to be critical in any country undergoing financial liberalization.     

Who Can Reform the Labor Market? IMF Conditionality,Partisanship, and Labor Unions

Labor market reforms are critical for economic growth. Yet, they are politically contentious, and governments, more often than not, are faced with strong opposition from interest groups. Scholarly work shows that governments often rely on external intervention to implement politically difficult reforms. This is the case with the International Monetary Fund (IMF) that typically conditions its financing on the implementation of required reforms. Do borrowing governments benefit from IMF programs to overcome domestic opposition to reform by organized interests? Utilizing a unique new data set on IMF conditionality, I show that partisan and electoral concerns and domestic alliances strongly affect the implementation of labor market reforms, even when the IMF imposes them. When faced with increasing number of strikes, left-wing governments are more likely to implement labor market reforms than center/right-wing governments. However, the left is less likely than the center/right to fulfill its international commitments during election years when labor groups are militant. These findings highlight the left’s unique ability to form pro-reform coalitions and the IMF’s conditional role in removing domestic political opposition to reform. Counter-intuitively, right-wing governments still struggle to reform the labor market, even during economic crises and under IMF programs.     

Domestic and Systemic Determinants of Capital Controls in the Developed and Developing World

This paper examines the utility of and preference for controls on short-term capital. Recent work in international political economy has argued that the increasing internationalization of finance has constrained the ability of governments to pursue independent monetary policies. For the most part this conclusion has been reached through an examination of a small number of advanced industrialized countries. This article argues not only that the globalization of finance is far from all-encompassing but also that domestic forces play a more significant role in explaining the implementation and removal of capital controls than do systemic factors. Capital controls are more likely to be put in place by governments that repress the financial sector, that choose to maintain a fixed exchange rate, and that are facing balance-of-payments crises. These propositions are tested using a random effects probit model on a panel of ninety-one countries from 1967 to 1992.     

Contradictions between economic liberalization and democratization: The case of South Korea

This article examines the relationships between economic liberalization and democratization in South Korea. The two processes are often correlated, but in Korea liberalization has been problematic for democratization. Domestic liberalization initially expanded space for labour organizations, but after they appeared to become too active, the process was so managed as to block political activity. This also resulted from pressures brought on by international liberalization, which made competitive wage costs increasingly important and raised the prospect of disinvestment by Korean and foreign firms. Liberalization has not reduced the power of business (the chaebol). Deregulation and privatization have encouraged a transfer of public economic power to the private sector. The increased political role of business is not necessarily beneficial, and the chaebol's economic power represents a threat to democratization in a variety of ways. In previous decades state power rested on economic controls; and the main impetus for democratization has come from the expansion of civil society through economic development, rather than from economic liberalization. State intervention in the economy may continue to be required to protect the position of certain civil society groups and to control business power, but domestic and international liberalization have challenged both of these functions and may increasingly curtail them in the future. Thus, close examination of the specifics of liberalization in South Korea show no automatic positive correlation can be made between economic and political reform without risking either reductionism or reification.     

Political ideology, quality at entry and the success of economic reform programs

This study investigates how government ideology matters for the success of World Bank economic policy loans, which typically support market-liberalizing reforms. A simple model predicts that World Bank staff will invest more effort in designing an economic policy loan when faced with a left-wing government. Empirically, estimates from a Heckman selection model show that the quality at entry of an economic policy loan is significantly higher for governments with a left-wing party orientation. This result is robust to changes in the sample, alternative measures of ideology, different estimation techniques and the inclusion of additional control variables. Next, robust findings from estimating a recursive triangular system of equations indicate that leftist governments comply more fully with loan agreements. Results also suggest that World Bank resources are more productive—in terms of reform success—in the design of policy operations than in their supervision. Anecdotal evidence from several country cases is consistent with the finding that left-wing governments receive higher quality loans.     

Fundamental Redesign of Financial Law: The Indian Approach

India is at the cusp of important financial sector regulatory reform. The reform aims at deeper changes in financial sector laws and regulatory architecture. While many incremental reforms were undertaken in the last two decades, the pace of change has slowed down owing to the constraints posed by the underlying legal framework. The key problems in the financial sector include: lack of financial inclusion, a glacial pace of innovation, the growth of an unregulated shadow financial system, numerous ponzi schemes, high inflation, and barriers to capital flows. In the last decade, there have been many efforts in rethinking financial sector regulation to address these problems. A group of expert committees created a consensus around a strategy for change, which has led to a draft law proposed by the Financial Sector Legislative Reforms Commission set up by the Ministry of Finance of the Government of India.     

The Status of Democracy and Human Rights in the Middle East: Does Regime Type Make a Difference?

The collapse of communism and the end of the Cold War have been accompanied by the spread of democracy, advancement in human rights, and the introduction of market reforms throughout the world. The Middle East has been no exception to this trend. There, in response to mounting economic crises and domestic pressures, several governments introduced democratic and economic reforms. This article investigates the progress that Middle East states have made on the path to political liberalization. In particular, it explores whether democratic reforms vary between regional republics and monarchies. To do so, the study analyzes patterns and trends associated with the distribution of political authority and human rights. The article employs five dimensions in this process, including electoral procedural democracy, liberal democracy, personal integrity rights, subsistence rights, and economic freedom. On the one hand, our findings comport with the view that Middle East states have not made significant progress toward institutionalizing procedural democracy and civil liberties. On the other, they lend support to the notion that liberalization is occurring in the region, particularly among monarchies.     

韩国金融账户自由化的经济效应研究

伴随着国际金融一体化的发展,金融账户自由化成为大势所趋。考察韩国金融账户自由化政策的演变历程以及金融账户的变动情况,可以对其金融账户自由化的经济效应及机制进行实证研究。     

The influence of interest: Real US interest rates and bilateral investment treaties

Bilateral Investment Treaties (BITs) present developing countries with a trade-off. BITs plausibly increase access to international capital in the form of foreign direct investment (FDI), but at the cost of substantially curtailing a government’s policy autonomy. Nearly 3000 BITs have been entered into, suggesting that many countries have found this trade-off acceptable. But governments’ enthusiasm for signing and ratifying BITs has varied considerably across countries and across time. Why are BITs more popular in some places and times than others? We argue that capital scarcity is an important driver of BIT signings: The trade-off inherent in BITs becomes more attractive to governments as the need to secure access to international capital increases. More specifically, we argue that the coincidence of high US interest rates and net external financial liabilities heightens governments’ incentives to secure access to foreign capital, and therefore results in BIT signings. Empirical evidence is consistent with our theory.     

东南亚国家保险业改革及其对我国的借鉴

20世纪80年代以来,东南亚各国的保险业得到很大发展,但在金融危机中也暴露出的这一行业存在许多深层次的问题,急需进行改革。在WTO和美国等西方国家的压力下,亚太地区各国从1996年底开始实施保险市场的自由化政策,逐步开放国内保险市场。面对这种形势,东南亚各国对本国的保险业进行了大刀阔斧的改革,取得了较好成效。东南亚保险业改革的经验在许多方面为我国提供了有益的启示。     

加大金融支持力度促进长吉图发展

如何加大金融创新力度已经成为长吉图开发开放能否实现快速发展的关键要素。为逐步建立与长吉图开发开放先导区建设相适应的金融服务体系,应当采取以下措施:营造良好的金融生态环境,支持、鼓励金融机构增加信贷投放;推动吉林省金融核心区建设,建立多层次的资本市场;争取投融资体制试点,发展投融资平台;加快推进人民币在中、俄、朝三国边境地区的区域化进程等一系列措施。     

How democratic decentralisation facilitates,sustains, and interrupts market-driven development in India

Democratic decentralisation has emerged as an instrument to implement market-driven development, and elected bodies now extend commercial inputs for commodity production and link households to firms. However, the nature of market-driven development under this condition is understudied. This article focuses on an Indian case where, while access to market inputs was shaped by political capital with elected leaders, narrowing market participation, leaders – now market intermediaries – fostered trust in firms, helping sustain market participation. Conflicts over electoral politics interrupted market production. Markets rely on state institutions and are intertwined with politics, contrary to market proponents’ claims that markets stand above society and are unmediated spaces of exchange.     

Not as bad as it seems: EU and US democracy promotion faces China in Africa

The rise of China in Africa is often described as a major challenge to the United States (US) and the European Union (EU) democracy promotion policies. China is accused of providing important volumes of loans, development aid, trade and investments without “political strings” attached, thereby undermining the US and the EU's possibilities to set material incentives for reforms. This article investigates Ethiopia and Angola as two cases where one would expect that the growing presence of China has made it more difficult for the EU and US to support reforms. Empirical findings presented in this article go against this argument. In both countries, the EU and the US face substantial difficulties to make the respective government address governance issues. However, the presence of China has not made it more difficult for the US and the EU to implement their strategies. Instead the empirical analysis suggests that domestic factors in Ethiopia and Angola, notably the level of challenge to regime survival both governments face, influence both governments’ willingness to engage with the EU and US.     

全球金融危机对泰国银行业的影响与前瞻

一、1997年亚洲金融危机后泰国银行业的改革之路 1997年亚洲金融危机中,泰国饱受国际投机资金冲击之苦,特别是泰国银行为满足国内融资缺口而大肆 举借外债,进行外债内投、短借长投,币种和期限不匹配风除不断积聚,最终由于泰铢的突然大幅贬值而遭受巨大冲击.