The Political Economy of Global Financial Governance: The Costs of Basle Ii for Poor Countries
World Economy & Finance Research Working Paper No. WEF 0015
50 Pages Posted: 14 Nov 2006
Date Written: November 2006
The 1990s financial crisis triggered many changes to the design of the international financial system, the so-called international financial architecture. While much affected, developing countries have had very little influence on the changes, which the formulation of the new Basle capital accord (B-II) illustrates. The article shows that B-II has largely been formulated to serve the interests of powerful market players, with developing economies being left out. For developing countries, B-II can make domestic financing more costly and raise the costs of and reduce the access to external financing. Importantly, B-II can exacerbate fluctuations in the supply of external financing, an unfortunate outcome, given that developing countries already suffer from volatility.
Keywords: Basle committee, capital adequacy, financial governance, financial architecture, financial reform, international standards, capital flows, poor countries, cost of capital, international development
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