Academic journal article Global Governance

Asian Financial Cooperation: The Problem of Legitimacy in Global Financial Governance

Academic journal article Global Governance

Asian Financial Cooperation: The Problem of Legitimacy in Global Financial Governance

Article excerpt

In this article, I show an important connection between global financial governance and Asian regional financial governance. My findings suggest that unless the G7-dominated global financial institutions resolve the legitimacy problems, which involve inclusiveness, rule-governance, and fair returns, Asian developing countries are unlikely to place whole stock in global solutions created to deal with global (and regional) financial issues. The perceived deficiency of political legitimacy, even in the post-Asian crisis global financial architecture, drives Asian countries to become rule makers rather than rule takers through the new regional financial arrangements, such as the Bilateral Swap Arrangement under the Chiang Mai Initiative and the Asian Bond Fund. KEYWORDS: legitimacy, globalization, Asian regionalism, international finance, multilateralism.

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Following the Asian financial crisis of 1997-1998, a set of new financial arrangements emerged at both the global and regional levels in order to prevent future financial crises. The Financial Stability Forum (FSF), the Group of 20 (G-20), the Bilateral Swap Arrangement (BSA) under the Chiang Mai Initiative, and the Asian Bond Fund (ABF) are among the new arrangements. It may be too early to evaluate systematically the explicit impact of the new financial forums on global and regional financial governance. Yet an understanding of the motivations behind these new financial arrangements may help us to explain and predict the future trajectory of global and regional financial governance. In this article, my primary purpose is to explain the driving forces behind the growing Asian regional financial cooperation. (1) Despite the new global financial arrangements, why have many Asian countries become more active supporters of regional financial cooperation as evidenced in the creation of the BSA and the ABF? (2)

In the article, my aim is not to assess either the causes of the recent Asian financial crisis or the economic performance of the new Asian financial arrangements. (3) Nor is my intention to make generic arguments about what principles and ideologies should guide the global and regional financial arrangements. These very important issues warrant a separate article. Instead, I focus on the formal decisionmaking structures and articulated policy agendas of global and regional financial arrangements in order to examine the significant sources of the growing Asian regional financial cooperation. In doing so, I show an important connection between global financial governance and Asian regional financial governance. The underlying argument here is that Asian countries may continue to attempt to strengthen the regional financial cooperative mechanisms until the political aspects of global financial governance--namely, the problem of legitimacy--are worked out. Legitimacy here is used to denote political legitimacy associated with wider participation (inclusiveness), agreed systems of rules (rule-governance), and a fair sharing of adjustment costs and benefits (fair returns).

The implications of the rise of Asian financial cooperation are significant, not merely for our analysis of Asia but also for our understanding of the current and future phase of the global economy. The emergence of new regional monetary cooperative arrangements is an important step forward for an Asian regional integration project. (4) The Bilateral Swap Arrangement under the Chiang Mai Initiative and the Asian Bond Fund offer significant instruments to prevent and manage financial crises in the region and also produce a functional base for further integration. The development of the Asian regional monetary system would also complement and constrain the United States-led global financial governance by boosting the political power and autonomy of Asia vis-a-vis the rest of the world, and the United States in particular.

Broadly, this analysis suggests that technical and economic counterarguments against the effectiveness of the Asian regional arrangements alone cannot discourage Asian countries from pursuing regional multilateral solutions to future international financial problems. …

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