Cornell University Press (February 2008)
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 countries, led by the US and UK, asked specialised public and private sector bodies to set international standards, and tasked the International Monetary Fund and the World Bank with their global dissemination and adoption. Non-Western countries were thereby strongly encouraged to emulate Western practices in banking and securities supervision, corporate governance, financial disclosure, and policy transparency.
This book examines in detail the quality of compliance with international regulatory standards in the key test cases of Indonesia, Malaysia, South Korea and Thailand since the Asian financial crisis of 1997-1998. It finds that actual compliance outcomes vary widely, both across different international standards and across countries. It also shows why policymakers, international organisations, and many academics have often overestimated the ability of international institutions and market forces to promote compliance and real institutional convergence.
Instead, Walter argues, domestic political economy factors best explain the variation of compliance outcomes and the very modest successes of the international standards project. Enduring aspects of Asian capitalism, including the substantial links between corporate and political power, and the family ownership of firms, made substantive compliance with international standards very costly for the private sector and hence politically difficult for governments to achieve. Therefore, despite international compliance pressure, the result was varying degrees of cosmetic or "mock" compliance. International institutions and financial markets often found mock compliance difficult to detect, and when they could detect it they had powerful incentives not to punish it. In a book containing lessons for any agency or country attempting to implement lasting change in financial governance, Walter emphasises the limits of global regulatory convergence in the absence of support from domestic politicians, institutions, and firms.
Andrew Walter is senior lecturer in the Department of International Relations, LSE.
"Nearly everyone expected the Asian Crisis to foster massive reforms-but it did not. Walter brilliantly illuminates why 'mock compliance' with international financial standards took precedence over substantive change."
Gary Clyde Hufbauer, Reginald Jones senior fellow, Peterson Institute for International Economics, Washington DC, USA.
"Andrew Walter's Governing Finance introduces to the field of international financial regulation the extremely useful concept of 'mock compliance.' International financial markets are not so constraining that governments in developing countries don't pretend to comply with international regulations and standards. To the question of why international investors don't punish such governments with capital flight, Walter points out that international investors may be satisfied with mock compliance as long as they believe the government can and will bail out the local companies should the need arise. This book combines keen insight with a detailed account of international regulatory compliance-or lack thereof - in Thailand, Indonesia, Malaysia, and Korea."
Frances McCall Rosenbluth, Damon Wells professor of Political Science, Yale University.
"Global Finance can be a lightning rod for crisis and economic collapse. Some of the world's most powerful policymakers believe they can manage these risks by promoting 'international standards.' Andrew Walter's rigorous book demonstrates why they might be wrong. It is a must-read for students, scholars, and practitioners of global finance and regulation."
Ngaire Woods, Oxford University and author of The Globalizers: The IMF, the World Bank, and their Borrowers.
"Andrew Walter's book highlights important differences between the appearance and substance of financial governance reforms in Asia. He also makes a valuable contribution to explaining how power and interest shape differential reform outcomes by placing domestic political forces at the heart of his analysis."
Garry Rodan, director, Asia Research Centre, Murdoch University.