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Basle II Capital Requirements and Developing Countries: a Political Economy Perspective on the Costs for Poor Countries of Rich Country Policies
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Draft, 8 January, 2004
Basle II Capital Requirements and Developing Countries:
A Political Economy Perspective on the Costs for Poor Countries of Rich Country Policies
By
Stijn Claessens
Professor of International Finance Policy
Geoffrey R. D. Underhill
Professor of International Governance
University of Amsterdam
and Xiaoke Zhang
Lecturer
University of Nottingham
Abstract
The 1990s financial crises have triggered changes to 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 (Basle II, B-II) illustrates. We show that B-II has largely been formulated to advance the interests of powerful market players, at the expense of those of developing economies. For these countries, B-II can raise the costs of and reduce the access to external financing. Importantly, B-II can exacerbate fluctuations in the availability of external financing, an unfortunate outcome, given that developing countries already suffer from volatile capital flows.
For presentation at the 45
th
Annual Convention of the International Studies Association,
Panel on “The Foundations of Financial Hegemony,” Montreal, Canada, 17-20
th
March
2004. We would like Erik Feijen for excellent research assistance.
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| | Authors: Claessens, Stijn., Underhill, Geoffrey. and Zhang, Xiaoke. |
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1
Draft, 8 January, 2004
Basle II Capital Requirements and Developing Countries:
A Political Economy Perspective on the Costs for Poor Countries of Rich Country Policies
By
Stijn Claessens
Professor of International Finance Policy
Geoffrey R. D. Underhill
Professor of International Governance
University of Amsterdam
and Xiaoke Zhang
Lecturer
University of Nottingham
Abstract
The 1990s financial crises have triggered changes to 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 (Basle II, B-II) illustrates. We show that B-II has largely been
formulated to advance the interests of powerful market players, at the expense of those of
developing economies. For these countries, B-II can raise the costs of and reduce the
access to external financing. Importantly, B-II can exacerbate fluctuations in the
availability of external financing, an unfortunate outcome, given that developing
countries already suffer from volatile capital flows.
For presentation at the 45
th
Annual Convention of the International Studies Association,
Panel on “The Foundations of Financial Hegemony,” Montreal, Canada, 17-20
th
March
2004. We would like Erik Feijen for excellent research assistance.
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