Working Papers - details - WEF0015
WEF0015
The Political Economy of Global Financial Governance: The Costs of Basle II for Poor Countries
Stijn Claessens, Geoffrey R D Underhill, Xiaoke Zhang
November 2006
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Abstract
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 fomrulated 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.
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