Governing Finance: East Asia's Adoption of International Standards

1. The Asian Crisis and the International Financial Standards Project

This chapter explains the impact of the Asian crisis of 1997–98 on the international financial standards regime that emerged promptly on its heels. Although some international standards existed before 1997, the crisis played a key role in focusing international attention on financial supervision failures in major developing countries and in promoting the idea that the dissemination of and compliance with international best practice standards was the solution. Thus, the crisis was a crucial factor in the emergence of the international standards project. Part of the reason for this was that the crisis helped to entrench the intellectual dominance of a particular model of regulation, “regulatory neoliberalism,” upon which many of these new international standards would be based. The structure of the chapter is as follows. In the first section, I briefly outline what I mean by “the new international standards regime,” as this term is not in standard usage in the literature. Although it is beyond the scope of this book to examine in detail the politics behind the emergence of each particular standard, I focus on the emergence of some of the international standards of most importance for this study: in the areas of banking regulation and supervision, corporate governance, and accounting. In the second section, I show how the Asian crisis helped both to promote the new international standards regime and the model of regulatory neoliberalism that underlies it. The third section concludes the discussion. The New International Standards Regime At the apex of the new international standards regime are the twelve “key standards for sound financial systems,” a compendium of which is provided 1 The Asian Crisis and the International Financial Standards Project The Asian Crisis and the Standards Project 9 by the Financial Stability Forum (FSF).1 Table 1.1 outlines these key standards , the international organization responsible for their issuance, and the date of promulgation.2 As can be seen, the standards range from sectoral (e.g., banking) and functional (e.g., accounting) policy areas, to macroeconomic policy and data transparency. In many cases, the standards amount to general principles rather than detailed prescription, but sometimes these are supplemented by additional documents specifying in more detail their practical application and methodologies for assessment of compliance. There are a number of things to note about this list. First, it reflects a general trend for key aspects of domestic economic regulation and governance to become matters of international negotiation. The key standards are intended to represent best practice principles for regulation and economic governance relevant to all countries. Second, most of the standards were issued after the Thai baht collapsed in July 1997, though some were under negotiation before the onset of the crisis. Some have since been modi fied and updated. Third, there is a wide range of international institutions responsible for their dissemination, including the major international financial institutions (IFIs) and other more specialized standard-setting bodies . Some, such as the International Accounting Standards Board (IASB) TABLE 1.1 Financial stability forum: Twelve key standards for sound financial systems Macroeconomic policy and data transparency Standard-setting body, date agreed Good practices on transparency in monetary and financial policies IMF, 09/1999 Good practices in fiscal transparency IMF, 04/1998 Special data dissemination standard IMF, 03/1996 General data dissemination system IMF, 12/1997 Institutional and market infrastructure Insolvency World Bank, 01/2001 Principles of corporate governance OECD, 05/1999; 04/2004 International accounting standards IASB, 10/2002, ongoing International standards on auditing IFAC, 10/2002 Core principles for systemically important payment systems CPSS, 01/2001 The Forty Recommendations of the Financial Action Task Force/The 8 Special Recommendations Against Terrorist Financing FATF, 04/1990; 02/2002 Financial regulation and supervision Core principles for effective banking supervision BCBS, 09/1997; 10/2006 Objectives and principles of securities regulation IOSCO, 09/1998 Insurance core principles IAIS, 09/1997; 10/2003 Source: http://www.fsforum.org/compendium/key_standards_for_sound_financial_system.html (accessed 23 October 2006). See the Appendix for a brief description of the standards and standardsetters . 10 Governing Finance and the International Federation of Accountants (IFAC), are private sector organizations, but in this case they have received a stamp of approval from the G7 countries. In general, as we shall see, the G7 countries dominate the process of standard setting and have taken the lead in the international standards project. Fourth, each of the 12 key standards contains more detailed specific codes...