International Financial Governance under Stress: Global Structures versus National Imperatives

By Geoffrey R.D Underhill; Xiaoke Zhang | Go to book overview

4

Global structures and political
imperatives: in search of normative
underpinnings for international
financial order

GEOFFREY R. D. UNDERHILL AND XIAOKE ZHANG

For ordinary people, firms and governments of the affected countries and regions, the financial crises in east Asia, Russia and Latin America were major events of enormous economic and political consequence. The fallout manifested itself in soaring interest rates, repressed investment activities and outright recession. In connection with these economic woes, unemployment rose to an unprecedented high and the income of a wide range of social groups declined sharply, leading to increased social instability and political unrest. In the crisis-stricken economies, political leaders struggled to balance strong external pressures from international financial institutions (IFIs), creditor countries and market agents for neo-liberal reforms with vigorous demands from domestic constituents for protection against growing international financial volatility.

These developments, despite national and regional diversity, have a common background: the process of global financial integration. This process has increasingly entangled once essentially closed and discreet national markets, greatly enhancing movements of capital across national frontiers. It is widely perceived to have generated increased strains in domestic sociopolitical and policy-making processes and intensified the conflicts between the dictates of financial globalisation and national policy imperatives. These tensions have raised serious doubts over the sustainability of economic growth in an environment of untamed capital movements, calling into question the legitimacy of the prevailing market order in the global system. Building on earlier work on the political economy of international finance, this chapter seeks to interpret, in three different but interrelated arguments, the constraints of global capital mobility and their consequences for democratic governance. These arguments in turn have important implications for the norms which underpin the reform of global financial architecture.

First, the process of global financial integration and opening of domestic economic space have constrained in important ways (though not eliminated) the autonomy of national governments in managing their macroeconomic variables, deploying social welfare policies and making strategic choices about the

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