Embedded policy preferences and the formation of international arrangements after the Asian financial crisis

New bilateral and multilateral arrangements emerged after the Asian financial crisis in the areas of financial assistance, financial regulation, and exchange rate stabilization. Strikingly, however, very few such arrangements emerged at the regional level. This paper argues that (1) the success of bilateral and international arrangements was the result of policy preference compatibility among East Asian countries and (2) the countries’ policy preferences can be explained as a function of their financial system features (securities-market-based or bank-credit-based) and external balance positions (capital-dependent or capital-sufficient). Although this framework cannot predict whether countries will agree on a particular policy proposal, it can explain the diversity of their proposals, the likely lines of conflict, the nature of their compromises, and why certain proposals succeed (or fail) even without the strong support (or opposition) of major powers.