Globalization, Politics, and Financial Turmoil: Asia's Banking Crisis (Political Economy of Institutions and Decisions)

In a world where capital moves freely across national borders, developing countries have increasingly been subjected to devastating financial crises caused by the sudden withdrawal of foreign capital. How do such crises develop? This book focuses on a novel causal path: that of miscommunication. By examining the determinants of Asia's financial crisis of 1997-98, it demonstrates why developing democracies are exceptionally vulnerable to breakdowns in communication between financial officials and the chief executive and outlines the disastrous consequences of such breakdowns. Cover......Page 1 Half-title......Page 3 Title......Page 7 Copyright......Page 8 Dedication......Page 9 Contents......Page 11 Figures and Tables......Page 12 Preface......Page 13 Globalization, Politics, and Financial Turmoil: Asia's Banking Crisis......Page 15 1 Introduction......Page 17 1.1 the literature on variations in bank regulation......Page 21 1.2 my argument in brief......Page 23 1.2.1 The Signaling Problem in Democratic Environments......Page 25 1.2.2 Absence of Signaling Problems in Authoritarian Environments......Page 31 1.2.3 The Logic of Gridlock......Page 32 1.3 alternative arguments......Page 33 1.4 plan for the book and summary of empirical contributions......Page 34 2 Bank Regulation......Page 36 3.1.1 Banking Sector Robustness......Page 44 3.1.3 The Inner Circle of Banking Advisors......Page 45 3.2 a scenario in which the central bank governor is the sole signaler of information collected by bank supervisors......Page 46 3.3.1 A Sketch of the Causal Mechanism for a Model with Two Signalers......Page 53 3.3.2 Preliminary Assumptions......Page 56 3.3.4 Information Structure and the Order of Moves......Page 57 3.3.6 Location of Ideal Points......Page 58 3.3.8 Proposition......Page 59 3.3.9 Comparative Statics (Changes from Benchmark Conditions)......Page 60 4.1.1 Background: Bank Regulatory Governance in Thailand Before 1992......Page 64 4.1.2 The Political Environment Following the Liberalization of Capital Flows......Page 69 4.1.3 Chuan's Inner Circle of Banking Advisors......Page 73 4.1.4 The Bank Regulatory Environment Under Chuan......Page 74 4.1.5 Thailand After Chuan......Page 80 4.2 south korea......Page 82 4.2.1 Background......Page 83 4.2.2 The Political Environment Between 1992 and 1997......Page 84 4.2.3 Kim Young Sam's Inner Circle of Banking Advisors......Page 86 4.2.4 The Bank Regulatory Environment......Page 88 4.3.1 Background: The Philippines Prior to Capital Flow Liberalization......Page 95 4.3.2 The Political Environment in the Philippines After Capital Flow Liberalization......Page 102 4.3.3 Bank Regulation in the Wake of Capital Flow Liberalization......Page 104 5.1 malaysia......Page 108 5.1.1 Background: Malaysia Before 1990......Page 109 5.1.2 The Inner Circle of Banking Advisors......Page 116 5.1.3 The Bank Regulatory Environment in the 1990s......Page 117 5.2 indonesia......Page 118 5.2.1 The Political Environment Under the New Order......Page 119 5.2.2 Economic Governance Prior to 1990......Page 120 5.2.3 The Inner Circle of Banking Advisors from 1989 to 1997......Page 123 5.2.4 The Bank Regulatory Environment in the 1990s......Page 127 6.1.1 Background: Singapore Between 1965 and 1990......Page 129 6.1.2 The Political Environment in the 1990s......Page 135 6.1.3 Bank Regulation in Singapore in the 1990s......Page 136 6.2.1 The Vision of Governance in Hong Kong Under Colonial Rule......Page 139 6.2.2 The Inner Circle of Banking Advisors in the 1990s......Page 143 6.2.3 Bank Regulation in Hong Kong in the 1990s......Page 144 7.1 summary of results, implications, and limitations of analysis......Page 146 7.2 an agenda for future research......Page 150 Appendix I The World Bank's Evaluation of Bank Regulatory Environments......Page 151 Appendix II Verbal Description of the Equilibrium with Two Signalers......Page 153 III.1 formal definition of solution concept......Page 155 III.2 corollary......Page 156 Bibliography......Page 157 Interviews by the Author......Page 169 Index......Page 171 In a world where capital moves freely across national borders, developing countries have increasingly been subjected to devastating financial crises caused by the sudden withdrawal of foreign capital. How do such crises come about? This book focuses on a novel causal path: that of miscommunication. By examining the determinants of Asia's financial crisis of 1997–8, it demonstrates why developing democracies are exceptionally vulnerable to breakdowns in communication between financial officials and the chief executive and outlines the disastrous consequences of such breakdowns. The book offers a framework for predicting where chief executives are most likely to be ill informed about critical economic variables. It also considers those situations in which politicians are dependent on financial officials whom they cannot completely trust or in which multiple veto players damage the flow of information. In a world where capital moves freely across national borders, developing countries have increasingly been subjected to devastating financial crises caused by the sudden withdrawal of foreign capital. How do such crises come about? This book focuses on a novel causal path: that of miscommunication. By examining the determinants of Asia's financial crisis of 1997-98, it demonstrates why developing democracies are exceptionally vulnerable to breakdowns in communication between financial officials and the chief executive and outlines the disastrous consequences of such breakdowns It focuses on the role of miscommunication in the financial crises of developing nations. By examining the determinants of Asia's financial crisis of 1997-98, it demonstrates why developing democracies are vulnerable to breakdowns in communication and outlines the disastrous consequences of such breakdowns On July 2, 1997, Rerngchai Marakanond, the governor of the Thai central bank, announced that he did not control sufficient foreign reserves to defend his country's currency from speculative attacks.