The International Financial Architecture and the Limits to Neoliberal Hegemony

Click to increase image sizeClick to decrease image size This paper is a revised and updated version of one delivered at the annual convention of the International Studies Association in Montreal, 2004. I would like to thank the participants on that panel for helpful comments. Mike Kenny, Kate Schick and two NPE reviewers also provided useful input. Notes 1. Jacqueline Best, ‘From the Top–Down: the New Financial Architecture and the Re-Embedding of Global Finance’, New Political Economy, Vol. 8, No. 3 (2003), pp. 378–9 2. Mario Giovanoli, ‘A New Architecture for the Global Financial Market: Legal Aspects of International Financial Standard Setting’, in Mario Giovanoli (ed.), International Monetary Law: Issues for the New Millennium (Oxford University Press, 2000), pp. 3–60. 3. See, particularly, Susanne Soederberg, ‘The New International Financial Architecture: A Procrustean Bed for Emerging Markets?’, Third World Quarterly, Vol. 23, No. 4 (2002), pp. 607–20. Best's piece, quoted above, is more subtle and circumspect, simply refusing to discuss prospects for implementation. 4. Geoffrey Hawthorn, ‘Liberalism Since the Cold War: an Enemy to Itself?’, Review of International Studies, Vol. 25, No. 5 (1999), pp. 145–60. 5. Jurgen Habermas, Between Facts and Norms: Contributions to a Discourse Theory of Law and Democracy (Polity, 1996). 6. Thomas Frank, The Power of Legitimacy Among Nations (Oxford University Press, 1990). 7. Claire Cutler, ‘Artifice Ideology and Paradox: The Public/Private Distinction in International Law’, Review of International Political Economy, Vol. 4, No. 2 (1997), pp. 261–85. 8. On embedded liberalism, see John Ruggie, ‘International Regimes, Transactions and Change: Embedded Liberalism in the Post War Economic Order’, International Organization, Vol. 36, No. 2 (1982), pp. 379–415. For a fuller description of the IMF in these terms, see Manuel Guitian, ‘The Unique Nature and Responsibilities of the International Monetary Fund’, International Monetary Fund Pamphlet Series, No. 31, 1992. Legitimacy is always a matter of degree. I am not trying to argue that the Bretton Woods regime was perfect (see, for example, Stephen Krasner. ‘The IMF and the Third World’, International Organization, Vol. 22, No. 3 (1968), pp. 670–88, and Tyrone Ferguson, The Third World and Decision Making in the International Monetary Fund: The Quest for Full and Effective Participation (Pinter, 1988)), but rather that it was relatively satisfactory. 9. Richard Gardner, Sterling–Dollar Diplomacy in Current Perspective (Columbia University Press, 1980); Sydney Dell, ‘On Being Grandmotherly: The Evolution of IMF Conditionality’, Essays in International Finance, 144 (Princeton University, 1981). 10. Guitian, ‘The Unique Nature and Responsibilities’. 11. Ibid., p. 11. 12. Louis Pauly, Who Elected the Bankers? Surveillance and Control in the World Economy (Cornell University Press, 1997). 13. Jacques Polak, ‘The Changing Nature of IMF Conditionality’, Essays in International Finance, 184 (Princeton University, 1991); Devesh Kapur & Richard Webb, Governance Related Conditionalities of the International Financial Institutions, G-24 Discussion Paper Series, No. 6, Washington DC, 2000. 14. See, for example David Beetham's writing, which stresses the relationship between institutions, on the one hand, and the purpose they are supposed to perform, on the other. The point of institutions is to reassure actors that institutional power is being exercised to promote the institutions' official (valued) goals and not for other purposes. David Beetham, The Legitimation of Power (Macmillan, 1991). Frank's attempt to separate ‘legitimacy’ from ‘justice’ in the postscript to The Power of Legitimacy is perhaps the least satisfactory part of his work. 15. The classic account of the consensus is John Williamson (ed.), IMF Conditionality (Institute for International Economics, 1983). For accounts stressing the technical aspects of Fund discretion, see Bahram Nowzad, ‘The IMF and its Critics’, Essays in International Finance, 146 (Princeton University, 1982) and Polak, ‘The Changing Nature of IMF Conditionality’. I do not suggest these arguments were ‘correct’ in some objective sense – I find them highly problematic – rather that they were reasonably effective politically. The classic critique of this conception of the ‘technical’ in liberal thought, of course, is Theodore Adorno & Max Horkheimer, The Dialectic of Enlightenment (Verso Classics, 1997). 16. Joseph Stiglitz, ‘More Instruments and Broader Goals: Moving Towards the Post-Washington Consensus’, WIDER Annual Lectures 2, Helsinki, 1998. 17. Joseph Stiglitz, Whither Socialism? (MIT Press, 1994). 18. World Bank, Sub-Saharan Africa: From Crisis to Sustainable Growth: A Long Term Perspective (Cambridge University Press, 1989). 19. Carole Lancaster, ‘Governance and Development: The Views from Washington’, IDS Bulletin, Vol. 124, No. 1 (1993), pp. 9–15. 20. Peter Kenen, ‘From Halifax to Lyon: What Has Been Done About Crisis Management?’, Essays in International Finance, 200 (Princeton University, 1996). 21. IMF, Good Governance: The IMF's Role (IMF, 1997). 22. 1 February 1998. 23. Timothy Lane, Atish Gosh, Javier Hamann, Steven Phillips, Marianne Schulze-Ghattas & Tsidi Tsikata, IMF Supported Programs in Indonesia, Korea and Thailand: A Preliminary Assessment (IMF, 1999). 24. Martin Feldstein, ‘Refocusing the IMF’, Foreign Affairs, Vol. 77, No. 2 (1998), pp. 20–33. 25. Stanley Fischer, ‘In Defence of the IMF: Specialized Tools for a Specialized Task’, Foreign Affairs, Vol. 77, No. 4 (1998), pp. 103–6. 26. Asif Qureshi, International Economic Law (Sweet & Maxwell, 1999). 27. Curzio Giannini, ‘“An Enemy to None but a Common Friend to All?” An International Perspective on the Lender of Last Resort Function’, Essays in International Finance, 214 (Princeton University, 1999). 28. Barry Eichengreen, ‘Strengthening the Common Financial House’, paper given at the World Bank/Japanese Finance Ministry Conference on Global Finance and Development, 2 March 1999. 29. The literature is now enormous. For high-profile criticisms, see Joseph Stiglitz, ‘What I Learned at the World Economic Crisis’, New Republic, 17 April 2000; Giancarlo Corsetti, Paolo Presenti & Nouriel Roubini, What Caused the Asian Currency and Financial Crisis?, mimeo, New York University, 1998, are more sympathetic to the Fund. 30. Ben Thirkell-White, ‘The IMF and Civil Society’, New Political Economy, Vol. 9, No. 2 (2003), pp. 251–70. 31. Richard Higgott, ‘The Asian Economic Crisis: A Study in the Politics of Resentment’, New Political Economy, Vol. 3, No. 3 (1998), pp. 333–56. 32. House Banking Oversight Subcommittee, Transcript of a hearing to review the operation of the IMF, 21 April 1998, Washington DC, 1998. 33. For an attempt to do so, see Ben Thirkell-White, The IMF and the Politics of Financial Globalisation: From the Asian Crisis to a New International Financial Architecture? (Palgrave, 2005). 34. House Banking Oversight Subcommittee, Transcript of a hearing on the IMF. 35. Council on Foreign Relations Council on Foreign Relations, Safeguarding Prosperity in a Global Financial System: The Future International Financial Architecture, Report of an Independent Task Force (Brookings Institution Press, 2000). 36. Cutler, ‘Artifice, Ideology and Paradox’; David Kennedy, ‘The Disciplines of International Law and Policy’, Leiden Journal of International Law, Vol. 12, No. 1 (1999), pp. 9–133. 37. For details of FSF membership and the codes themselves, see http://www.fsforum.org. 38. Katerina Pistor, ‘The Standardization of Law and its Effect on Developing Economies’, G24 Discussion Papers, No. 4, June 2000. 39. Barry Eichengreen, Towards a New International Financial Architecture: A Practical Post-Asia Agenda (Institute for International Economics, 1999), p. 35. 40. The best overview of the debate is probably Azizali Mohammed, ‘Implementing Standards and Codes through the BWIs: An Overview of the Developing-Country Perspective’, in Ben Schneider (ed.), The Road to International Financial Stability: Are Key Financial Standards the Answer? (Palgrave, 2003), pp. 62–86. 41. Lawrence Summers, Statement to the International Monetary and Finance Committee of the IMF, Prague, 24 September 2000. 42. Of course the significance of Fund enforcement should not be overrated. Fund resources are limited and the Fund has experienced significant problems in securing implementation of conditionality Tony Killick, Ramani Gunatilaka & Anna Marr, Aid and the Political Economy of Policy Change (Routledge and ODI, 1998). 43. See IMF External Evaluation of the ESAF: Report by a Group of Independent Experts (IMF, 1998), which suggests that Fund staff negotiating programmes tend to impose ‘optimal’ solutions rather than discuss a range of possibilities with national authorities. 44. For positive views of soft law, see Kenneth Abbott & Duncan Snidal, ‘Hard and Soft Law in International Governance’, International Organization, Vol. 54, No. 3 (2000), pp. 421–56; Dinah Shelton, ‘Law, Non-law and the Problem of Soft Law’, in Dinah Shelton (ed.), Commitment and Compliance: The Role of Non-binding Norms in the International Legal System (Oxford University Press, 2000), pp. 1–18. Most writers in this tradition do not consider the possibility that states might find themselves coerced into accepting unwanted obligations. Some legal realists, however, remain concerned that ‘relative normativity’ is harmful to legal certainty and therefore subversive of the legal order as a whole. Prosper Weil, ‘Towards Relative Normativity in International Law?’, American Journal of International Law, Vol. 77, No. 3 (1983), pp. 413–42. For a rationalist approach that explicitly contemplates quasi-coercion in regime formation, see Leon Gruber, Ruling the World: Power Politics and the Rise of Supranational Institutions (Princeton University Press, 2000). 45. Giovanoli, ‘A New Architecture’ and Pistor, ‘The Standardization of Law’. 46. For a thorough analysis of the way in which the meaning of standards is changed by third party enforcement and the problems that result, see Dieter Kerwer, ‘Standardizing as Governance: The Case of Credit Rating Agencies’, in Adrienne Heritier (ed.), Common Goods: Reinventing European and International Governance (Rowan and Littlefield, 2002), pp. 293–315. 47. Both cited in Jacqueline Best, ‘Moralizing Finance: The New International Financial Architecture as Ethical Discourse’, Review of International Political Economy, Vol. 10, No. 3 (2003), pp. 586, 592. For the originals, see Council on Foreign Relations, Safeguarding Prosperity, and Eichengreen, Towards a New International Financial Architecture. 48. Eichengreen, Towards a New International Financial Architecture, p. 22. 49. Dani Rodrik, Governing the Global Economy: Does One Architectural Style Fit All?, mimeo, Harvard University, 1999, Gerald K. Helleiner, Developing Countries in Global Economic Governance and Negotiating Processes, unpublished manuscript prepared for the WIDER project on ‘new roles and functions for the UN and the Bretton Woods institutions’, Helsinki, 2000. 50. Mohammed, ‘Implementing Standards and Codes’. 51. Governance Issues in Intergovernmental Groupings of Developing Countries, mimeo, http://www.globaleconomicgovernance.org (accessed 5 October 2006). 52. Mohammed, ‘Implementing Standards and Codes’. 53. See the IMF fact sheet on ROSCs and FSAPs, available at http://www.imf.org and the texts of the reports themselves. 54. Compare the outcomes with ‘Strengthening the International Financial Architecture’, report from G7 Finance Ministers to the Heads of State and Government, Fukuoka, Japan, 8 July 2000, available at http://www.g7.utoronto.ca/finance/fm29000708-st.html. 55. Financial Stability Forum, Final Report of the Follow-up Group on Incentives to Foster Implementation of Standards, Basel, September 2001; Layna Mosley, Global Capital and National Governments (Cambridge University Press, 2003). 56. Private sector groups have tried to incorporate aspects of the ROSC process into market friendly scores – Standard and Poor's have a corporate governance score based on the OECD standard and the ‘estandards forum’ provides scores for the full range of ROSCs (http://www.estandardsforum.com) – but there is no available data on use and uptake of these services. 57. Author's interview, London, July 2002. 58. Financial Stability Forum, Final Report of the Follow-up Group on Incentives, paragraph 27. 59. These views are ubiquitous. See, more broadly, Thomas Friedman, The Lexus and the Olive Tree (Anchor Books, 2000); Anne Krueger, ‘Market Discipline and Public Policy: The Role of the IMF’, keynote address, conference on Market Discipline: The Evidence Across Countries and Industries, 31 October 2003, at http://www.imf.org/external/np/speeches/2003/103103.htm (last accessed 10 August 2006). 60. Angus Cameron & Ronen Palan, The Imagined Economies of Globalization (Sage, 2004). 61. Geoffrey Garrett, ‘Global Markets and National Politics: Collision Course or Virtuous Circle?’ International Organization, Vol. 52, No. 4 (1998), pp. 787–824; Mosley, Global Capital. 62. Robert Wade & Frank Venerosso, ‘The Gathering World Slump and the Battle Over Capital Controls’, New Left Review, No. 231 (1998), pp. 13–42; Council on Foreign Relations, Safeguarding Prosperity. 63. Very little research has been done on what markets will or will not ‘discipline’ in emerging markets. The best available study is Mosley, Global Capital. She shows that emerging market analysts scrutinise a far wider range of policies than those working in the bond markets of developed countries. However, she does not provide any evidence of predictable reactions to particular policy choices – particularly not the kind of fine-grained regulatory decisions involved in the standards and codes process. 64. John Williamson (ed.), The Political Economy of Policy Reform (Institute for International Economics, 1984). 65. Bruce Cumings, ‘The Korean Crisis and the End of Late Development’, New Left Review, No. 231 (1998), pp. 43–72. 66. Stephan Haggard & Wonhyuk Lim (eds), Economic Crisis and Corporate Restructuring in Korea: Reforming the Chaebol (Cambridge University Press, 2003); Chungin Moon & Jongryn Mo, Economic Crisis and Structural Reforms in South Korea: Assessments and Implications (The Economic Strategy Institute, 2000). 67. The words ‘national heritage’ were used to me by a high-ranking member of the Prime Minister's National Economic Action Council during an interview in 2006. Many of these assets are now held by Khazanah – a government run investment company based, loosely, on the model of Singapore's Temasek Holdings (hardly the kind of corporate governance intended by the neoliberal architecture). See, for example, Sonia Kolesnikov-Jessop, ‘Analysis: The Return of Malaysian GLCs’, Washington Post, 28 September 2004. 68. Chin Kok Fay, ‘Malaysia's Post-Crisis Bank Restructuring’, in Jomo Kwame Sundaram (ed.), After the Storm: Crisis Recovery and Sustaining Development in Four Asian Economies (ISEAS, 2004), pp. 204–29. 69. Richard Robison & Vedi Hadiz, Reorganising Power in Indonesia: The Politics of Oligarchy in an Age of Markets (RoutledgeCurzon, 2004). On the reforms that have taken place see Yuri Sato, ‘Bank Restructuring and Financial Institution Reform in Indonesia’, The Developing Economies, Vol. 43, No. 1 (2005), pp. 91–120. 70. Paul Blustein, And the Money Kept Rolling In (and Out): Wall Street, the IMF and the Bankrupting of Argentina (Public Affairs, 2005). 71. Pia Riggirozzi & Jean Grugel, The Return of the State in Argentina, mimeo, University of Sheffield, 2006. 72. This view has also been confirmed in the author's interviews with Ariel Buira, the current G24 coordinator (Washington DC, April 2006) and in the limited empirical research available on the question – see Andrew Walter, ‘Intellectual and Institutional Convergence in East Asia: The Voluntary Euthanasia of the Asian Model?’, paper presented at the Annual Convention of the International Studies Association, Portland, OR, 25 February–1 March 2003. 73. Nouriel Roubini & Brad Setser, Bailouts or Bail-ins? Responding to Financial Crises in Emerging Economies (Institute for International Economics, 2004). 74. For some of the more transparent examples, see the ‘policy letters’ produced by the Institute of International Finance (available at http://www.iif.com/ipi/letters.quagga). 75. See transcripts of the House Committee on Banking and Financial Services hearing on ‘The State of the International Financial System’, 13 May 2003. 76. The story of the SDRM's rise and decline has yet to be fully told. Anecdotal reports from various sources suggest European governments were initially in favour. The US government was never more than ambiguous and became less enthusiastic under Wall Street influence (see Roubini & Setser, Bailouts or Bail-ins). The Latin Americans were in too much trouble to risk anything that might concern the markets. Over time, frenzied financial institution lobbying in Europe also weakened the Europeans' resolve. 77. That concern about shrinking client base was made very clear to this author in interviews with staff in the IMF's Policy Development and Review Department, Research Department and Independent Evaluation Office carried out in Washington, DC, January 2006. It is also a deliberate strategy (interview with member of the Malaysian National Economic Action Council, Kuala Lumpur, June 2006). 78. Randall Germain, ‘Globalizing Accountability within the International Organization of Credit: Financial Governance and the Public Sphere’, Global Society, Vol. 18, No. 3 (2004), pp. 217–41. Canadian scholars such as Germain and Tony Porter have a more positive reading of the G20 process than me. They argue it shows significant involvement of emerging markets in financial governance. However, those closer to the policy ‘coal face’ are more sceptical. The G20 process seems to have had little impact on the final formulation of the architecture, which took place within the FSF. See, for example, Helleiner, Developing Countries in Global Economic Governance. On the IMF's policy changes see IMF, Strengthening Country Ownership of Fund-Supported Programmes, December 2001 available at http://www.imf.org/external/np/pdr/cond/2001/eng/strength/120501.htm, and Thomas Dawson & Gita Bhatt, The IMF and Civil Society Organisations: Striking a Balance, Policy Discussion Paper PDP/01/02, IMF, 2001. 79. Habermas, Between Facts and Norms. 80. See the comments posted at http://www.bis.org/bcbs/cacomments.htm and http://www.bis.org/bcbs/cp3comments.htm. 81. David Booth, Fighting Poverty in Africa: Are PRSPs Making a Difference? (ODI, 2003) 82. This is clearest in discussions of ‘ownership’ and ‘civil society engagement’, but was also a recurrent theme in interviews about the political economy of adjustment with a range of IMF staff carried out in Washington, January 2006. 83. Thomas & Bhatt, The IMF and Civil Society Organisations. 84. World Bank, Economic Growth in the 1990s: Learning from a Decade of Reform (World Bank, 2005); Dani Rodrik, ‘Industrial Policy for the Twenty-First Century’, paper prepared for UNIDO, September 2004, available at http://ksghome.harvard.edu/~drodrik/UNIDOSep.pdf. 85. See, for example, Riggirozzi & Grugel, The Return of the State in Argentina; Pasuk Phongpaichit & Chris Baker, ‘Aftermath: Structural Change and Policy Innovation after the Thai Crisis’, in K. S. Jomo (ed), After The Storm: Crises, Recovery And Sustaining Development in East Asia (Singapore University Press, 2004), pp. 150–72. Also author interviews with Chatib Basri & Dradajad Wibowo, Jakarta, July 2006 (both of whom are respected economists that have advised the current Indonesian President). 86. Craig Murphy, Global Institutions, Marginalization, and Development (Routledge, 2004).