The Political Economy of Global Financial Governance: The Costs of Basle II for Poor Countries

Abstract

The 1990s financial crises 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.Basle Committee, capital adequacy, financial governance, financial architecture, financial reform, international standards, capital flows, poor countries, cost of capital, international development