Globalizing in Hard Times: The Politics of Banking-Sector Opening in the Emerging World by Leonardo Martínez-Díaz (review)

Throughout history, few industries have commanded greater economic, political, and social interest than a country's banking sector. This is clearly evident as one considers recent events in the global economy. Martínez-Díaz, in Globalizing in Hard Times, provides an important and timely contribution to our understanding of the process that leads to banking sector liberalization in four emerging economies (Mexico, Brazil, Indonesia, and South Korea). The author adopts a compelling and well-organized case study approach to reconstruct the timing of events in the policymaking process and to identify the driving pressures that led to liberalization. A significant finding from this research is equifinality, suggesting that there are multiple paths to liberalization. However, the author's main argument is that driving pressures to liberalize the banking sector were ineffective until there was a banking crisis, which the author defines as a critical juncture. Only at this critical juncture were policymakers able, or in some cases willing, to enact de jure and de facto banking sector liberalization. In short, the author argues that the presence of a banking crisis is a necessary, although not always sufficient, condition for opening the banking sector to foreign investors.

To set the stage for the argument, the first two chapters of the book adequately review the history of banking sector liberalization in the twentieth century, along with the role and influence of foreign investors, domestic politics, trade negotiations, and international institutions. Early on, the author identifies four principal pressures that drive banking sector opening: external pressure, domestic power shifts, ideational change, and changing political survival priorities to be used as the author's guiding analytical framework. In chapters three through six, the author applies the framework to each case in a common narrative that considers the following: (1) the evolution and development of the banking sector, the relationship between the state and the banking elite, the influence of the Bretton Woods institutions, and trade negotiations, (2) the government's attempts at managed opening before the banking crisis, (3) the banking crisis or critical juncture, and (4) the politics of de facto opening. This research design considers all four pressures simultaneously in order to identify which driving pressure or pressures best support(s) the case-based evidence. As a result, the book's major contribution is identifying the pressures that led to liberalization in the presence of a banking crisis. As illustrated in the cases, different pressures drove policymakers to liberalize their banking sectors for different reasons and through different mechanisms.

To illustrate, the author found strong evidence for ideational change in the case of Mexico. Leading up to the Mexican banking crisis of the mid-1990s, the Mexican president favored liberalization policies but did not garner legislature support until the banking crisis changed the beliefs of the legislature to support liberalization policies. Contrary to previous research, the author showed that external pressures from the United States actually slowed down the liberalization process. Unlike the Mexican case, the author found no evidence that there was a change in causal beliefs in Brazil leading up to the liberalization of the Brazilian banking sector. In fact, the Cardoso administration preferred to have the banking industry in domestic control. Further, there was no evidence to suggest that external pressure influenced the administration's decision to liberalize. The author found that the decision to liberalize was largely based on political survival. Brazil had just introduced a new stabilization program, the plano real in 1994, that appeared to maintain inflation under control. In order for the administration to remain legitimate, the success of the program was paramount. The advent of the banking crisis in Brazil threatened the stability of the new program. In order to save the program and the banking sector, the administration felt that it was necessary to seek the assistance of foreign...