Your World of Legal Intelligence
 United Kingdom | +44 (0) 20 7284 8080

Banking on Democracy: The Political Economy of International Private Bank Lending in Emerging Markets

Document Cited in Related
Vincent
AuthorJavier Santiso,Javier Rodríguez
Published date01 March 2008
Date01 March 2008
DOIhttp://doi.org/10.1177/0192512107085613
Subject MatterArticles
)NTERNATIONAL0OLITICAL3CIENCE2EVIEW6OL.On
$/)¥)NTERNATIONAL0OLITICAL3CIENCE!SSOCIATION
3AGE0UBLICATIONS,OS!NGELES,ONDON.EW$ELHIAND3INGAPORE
"ANKINGON$EMOCRACY
4HE0OLITICAL%CONOMYOF)NTERNATIONAL
0RIVATE"ANK,ENDINGIN%MERGING-ARKETS
*AVIER2ODRÓGUEZAND*AVIER3ANTISO
!BSTRACT#LEARLYANEWAGENDAISEMERGINGFORPRIVATEINTERNATIONAL
BANKS0OLITICAL ISSUES SUCH AS HUMAN RIGHTS SEEM TO BE A CURRENT
CONCERN"UTWHATABOUTDEMOCRACY7HATABOUTPOLITICALREGIMES!RE
THEYTAKENINTOACCOUNTBYPRIVATEBANKSWHENTHEY DECIDEWHETHERTO
INVESTINACOUNTRY0UTANOTHERWAYDOPRIVATEBANKSHAVEDEMOCRATIC
POLITICALPREFERENCES)NTHISARTICLE WEFOCUSONCROSSBORDERLENDING
FROMINTERNATIONAL BANKERS4HE QUESTIONSASKED AREAS FOLLOWS$O
BANKERSREACTPOSITIVELYTHATISBYINCREASINGTHEIRLENDINGWHENAN
EMERGINGDEMOCRACYAPPEARS$OWEWITNESSINCREASEDBANKLENDINGAFTER
DEMOCRATICTRANSITIONS,ASTLYISTHEREANYRELATIONBETWEENDEMOCRATIC
CONSOLIDATIONANDBANKLENDING
+EYWORDSs"ANKSs#APITALmOWSs$EMOCRACYs%MERGINGMARKETS
)NTRODUCTION
7ALL3TREETAND THE#ITY ARESTARTING TOTAKE AFRESH LOOKAT EMERGINGMARKETS
$URINGTHE S lNANCIAL AND ECONOMIC VARIABLES DOMINATED THEIR ANALYSIS
)NTHE S POLITICAL SOCIAL ANDETHICAL VARIABLES ARE BECOMING INCREASINGLY
RELEVANT
%XAMPLESOFTHISINTERESTABOUND0ENSIONFUNDSSUCHAS#ALPERSAMAJOR53
PENSIONFUND WITH MORE THAN53 BILLION IN ASSETS UNDERITS MANAGEMENT
IN AND WHICH STARTED TOINVEST IN EMERGING MARKETS BYTHE BEGINNING OF
THESARE CONSIDERINGWHEN INVESTINGIN EMERGINGMARKETS NONlNANCIAL
CRITERIASUCHASPOLITICALSTABILITYTRANSPARENCYANDLABORRIGHTSALONGWITHFOUR
OTHERMORETRADITIONALlNANCIALCRITERIA/NEOFTHEEFFECTSOFTHISAPPROACHHAS
BEENANIMPROVEMENTINRATINGSWITHTHESCORESOFTHECOUNTRIESINCLUDEDIN
#ALPERSlNANCIALSCREENINGIMPROVINGOVERALL!MONGTHEM-OROCCO-ALAYSIA
3RI,ANKAAND*ORDANALLOFWHICHWEREEXCLUDEDFROMTHELISTOFCOUNTRIESSUITABLE
 )NTERNATIONAL0OLITICAL3CIENCE2EVIEW
FORINVESTMENTINTOPPEDTHELISTFORCOUNTRYIMPROVEMENTSIN7HEN
EXCLUDEDFROMFOREIGNINVESTMENTEMERGINGMARKETCOUNTRIESTENDTOIMPROVE
THEIRGOVERNANCEPRACTICESANDSTANDARDSINORDER TOATTRACTINVESTMENT (EBB
AND7OJCIK
-EANWHILEASINTHECASEOFASSETMANAGERSBANKERSALSOSTARTEDTOTAKEINTO
ACCOUNTOTHER VARIABLESTO ASSESSTHEIR INVESTMENT DECISIONSAROUND THEWORLD
)N A LEADING GROUP OF GLOBAL BANKERS LAUNCHED THE %QUATOR 0RINCIPLES
ANUNPRECEDENTEDINITIATIVELEDBYOFTHEWORLDSLARGESTBANKSTOADDRESSTHE
SOCIALANDENVIRONMENTALIMPACTSOFTHEPROJECTSTHATTHEYlNANCE3INCETHEN
ALLTHE BIG NAMESIN PROJECT lNANCE IN TOTALBY MID HAVESIGNED UP
FORTHISSERIES OFGUIDELINES BASEDONTHOSE USEDBY THE)NTERNATIONAL&INANCE
#ORPORATIONTHE7ORLD"ANKSPRIVATElNANCINGARMFORASSESSINGTHEIRPROJECT
lNANCE DEALS "ANKS WITH SUCH IMPECCABLY CAPITALIST CREDENTIALS AS #ITIBANK
""6!!".!MROAND(3"#AREALLLININGUPTOPROVETHATTHEIROPERATIONSCAN
MEASUREUPTOSUSTAINABILITYGOALS)NAREVISEDSETOFGUIDELINES%QUATOR))
WASAPPROVEDEXPANDINGREQUIREMENTSFORLABORCONDITIONSCOMMUNITYHEALTH
ANDSAFETYANDSECURITY
(UMANRIGHTSISSUESWHICHINTHEPASTHAVEMAINLYBEENAFOCUSOFINDUSTRIAL
COMPANIES#OLONOMOSAND3ANTISOHAVEALSOBEENINCREASINGLYSCRUTINIZED
BYTHElNANCIALSECTOR"ECAUSETHEBANKINGSECTORISINCREASINGLYCOMINGUNDER
SCRUTINYFROMNONGOVERNMENTALORGANIZATIONSFORITSROLEINlNANCIALPROJECTSTHAT
MIGHTINVOLVEHUMANRIGHTS ISSUESBANKSCAN NOLONGERAFFORD TOBEPERCEIVED
TOBECOMPLICITINETHICALSOCIAL ANDENVIRONMENTALABUSESOFTHEIRCUSTOMERS
)NSTITUTIONAL INVESTORS PARTICULARLY THOSE INVOLVED IN ACTIVE MANAGEMENT AND
SOCIALLYRESPONSIBLEFUNDSAREASKINGMOREQUESTIONSABOUTPOLITICALGOVERNANCE
ANDHUMAN RIGHTSWITH BOTHISSUES BEINGINCLUDED INTHE AGENDASOF BANKERS
,ITIGATIONRISKS HAVE ALSO BEEN RISINGAS EXEMPLIlED BY CLAIMS FORMORE THAN
53BILLIONFACEDINTHE53!INBYMORETHANOFTHEWORLDSLEADING
INTERNATIONALBANKSAND CORPORATIONSFORTHEIRROLEIN SUPPORTINGAPARTHEIDIN
3OUTH!FRICA/VERPASTYEARSTHE53LAWYER%D&LAGANHASALSO BECAMEFAMOUS
FORSUING3WISSBANKSONBEHALFOF(OLOCAUSTSURVIVORS
!LLINALLWEHAVEBEENWITNESSINGAPROLIFERATIONOFINITIATIVES4HESEINCLUDETHE
lNANCIALINSTITUTIONSTHATAREPARTOFTHE5.%NVIRONMENT0ROGRAMME&INANCE
)NITIATIVE5.%0&)THECOMPANIESTHATDEVELOPEDSPECIlCSTATEMENTSON
HUMANRIGHTSAMONGTHEMASSETMANAGERSSUCHAS!BERDEEN!SSET-ANAGEMENT
INSURERSSUCHAS!'&ANDBANKSSUCHAS"ARCLAYS3TANDARD#HARTEREDAND#ITI
GROUPTHE BUSINESS lNANCEAND NONCOMMERCIALPARTICIPANTS INTHE 5.
'LOBAL#OMPACTTHE/RGANIZATIONFOR%CONOMIC#OOPERATIONAND$EVELOPMENT
/%#$'UIDELINESFOR-ULTINATIONAL%NTERPRISESANDMANYMORE
!TTHESAMETIMEONEAFTERANOTHERFOREIGNBANKSARERUSHINGTOWARD#HINA
,UREDBYTHEHUGEMARKETSIZEOF#HINASAGGLOMERATIONECONOMYFOREIGNDIRECT
INVESTMENT&$)HAS BEENRUNNINGAS HIGHAS53 BILLIONAYEAR DURINGTHE
SBANKERS BEING PART OF THISRUSH TOWARD THE #HINESE GOLDMINE -OST
MERGERSANDACQUISITIONSBY FOREIGNERSHAVEINVOLVEDBUYING MINORITYSTAKESIN
STATElRMSMAINLY#HINASBANKS3OFAR#HINAHASCOLLECTEDMORETHAN53BIL
LIONFORSTAKESINBANKSINVESTMENTBOUTIQUESANDFUNDMANAGEMENTCOMPANIES
"YMIDATOTALOFFOREIGNBANKSHADBRANCHOPERATIONSANDAFURTHER
HADREPRESENTATIVEOFlCESIN#HINA!LLINALLFOREIGNBANKSSTILLREPRESENTAMEAGER
PERCENTOFTHE#HINESEMARKETSHARE0RICEWATERHOUSE#OOPERS
2ODRÓGUEZ3ANTISO"ANKINGON$EMOCRACY 
#LEARLYANEWAGENDAISEMERGINGFORPRIVATEINTERNATIONALBANKS0OLITICALISSUES
SUCHASHUMANRIGHTSSEEMTOBEACURRENTCONCERN"UTWHATABOUTDEMOCRACY
7HATABOUTPOLITICALREGIMES!RETHEYTAKENINTOACCOUNTBYPRIVATEBANKSWHEN
THEYDECIDE WHETHERTO INVESTIN A COUNTRY0UT ANOTHERWAYDO PRIVATE BANKS
HAVEDEMOCRATICPOLITICALPREFERENCES4HE#HINESERUSHMIGHTSUGGESTAMIXED
ANSWER(OWEVERAS WEWANTTO UNDERLINEITSEEMS THATBANKERSTEND TOLOVE
DEMOCRACIESMORETHANINITIALLYSUSPECTEDANDPARTICULARLYEMERGINGONES
0RIVATECAPITAL MOVEMENTS HAVEBEEN ON THERISE OVER THE PASTFEW DECADES
ANDBANKmOWSHAVEBEENPARTOF THISSTORY3UCHCAPITALMOVEMENTSHAVEBEEN
CONSIDEREDBOTHASAPANACEAANDANANATHEMABYACADEMICSANDPOLICYMAKERS
3OMEEMPIRICALSTUDIESHAVEBEEN DEVOTEDTO ANALYZINGTHE POLITICALDRIVERS OF
THISINTERNATIONALLIQUIDITYBUTPARADOXICALLYVERYFEWHAVEBEENDEVOTEDTOTHE
POLITICALECONOMYOFBANKING(ARDLYANY RESEARCHEXISTSONTHEROLEOF POLITICS
INEXPLAINING CROSSBORDER BANKING MOVEMENTS )N PARTICULARTHE DEMOCRATIC
PREFERENCESOF BANKERSARE UNDERRESEARCHED7ENEED TO KNOWMORE ABOUT
BANKERSPOLITICALPREFERENCESANDTHEPOTENTIALIMPACTTHEYCANEXERTONBOTH
ECONOMICANDPOLITICALDEVELOPMENT
!SEPARATE STUDYIS DEVOTEDTO FOREIGN DIRECTINVESTORS ADDRESSINGTHE SAME
QUESTION CONCERNING POLITICAL PREFERENCES .EUT AND 3ANTISO  AND WE
HAVEALSODEDICATEDANOTHERSEPARATESTUDYTOTHEPOLITICALECONOMYOFPORTFOLIO
INVESTORS.IETOAND3ANTISOCOVERINGTHEREFORETHETHREEMAJORTYPESOF
PRIVATECAPITALmOWSBANKmOWS&$)mOWSANDPORTFOLIOmOWS)NTHISARTICLEWE
WILLFOCUSONLYONASPECIlCSETOFPRIVATEmOWSCROSSBORDERLENDINGFROMINTER
NATIONALBANKERS 4HE QUESTIONS RAISEDWILL ALSO BE NARROWERDO BANKERS
REACTPOSITIVELYTHATISBYINCREASINGTHEIRLENDINGWHENANEMERGINGDEMOCRACY
APPEARS$OWEWITNESSINCREASEDBANKLENDINGAFTERDEMOCRATICTRANSITIONS,ASTLY
ISTHEREANYRELATIONBETWEENDEMOCRATICCONSOLIDATIONANDBANKLENDING
4HEQUESTIONISNOTTHEREFOREWHETHERPRIVATEBANKERSPREFERDEMOCRACIES
WORLDWIDEBUTWHETHERTHEY CONTRIBUTETOPOLITICALDEVELOPMENT BYLENDINGTO
EMERGINGDEMOCRACIES4HEDEMOCRATICPREFERENCEOFBANKERSISINFACTQUICKLY
ASSESSEDIFWEANALYZEBANKS CROSSBORDERCLAIMS"YTHE ENDOFTHE STOCK
OF CROSSBORDER CLAIMS OF "ANK FOR )NTERNATIONAL 3ETTLEMENTSREPORTING BANKS
WAS53BILLION/FTHISTOTALTHEBULKWASDIRECTEDTODEVELOPED/%#$
ECONOMIESALL OF THEM DEMOCRACIES /NLY 53BILLION WENT TO EMERGING
COUNTRIESTHEREFOREROUGHLYLESSTHANPERCENTOFTHETOTALGOESTOEMERGING
MARKETECONOMIESMOSTLYTOEMERGINGDEMOCRACIESSUCHAS3OUTH+OREA"RAZIL
AND-EXICO!COUNTRYLIKE#HINAONLYCONCENTRATESASTOCKOF53BILLION
INCROSSBORDERBANKCLAIMS WHICHISLESS THANPERCENTOF THEWORLDSTOCK
"ANKERS THEREFORE SEEM TO HAVE A CLEAR PREFERENCE FOR CONCENTRATING THEIR
LENDINGACTIVITIESBYMORETHANPERCENTTOWARDDEMOCRACIES
)TISTHEREFOREMOREINTERESTINGTOLOOKATWHETHERBANKERSTENDTOPREFERTO
LENDTONEWEMERGINGDEMOCRACIES)NOTHERWORDSDOTHEYREACTTODEMOCRATIC
TRANSITIONSANDARETHEYSENSITIVEONCETHETRANSITIONISACHIEVEDTODEMOCRATIC
CONSOLIDATION4HESEQUESTIONSAREINTERESTINGFROMATHEORETICALPOINTOFVIEWAS
ABODYOFRESEARCHHASBEENDEVOTEDTOTHECONTRIBUTIONOFBANKINGTOECONOMIC
DEVELOPMENTBUTNOTTOPOLITICALDEVELOPMENT
)NTHEPRESENTARTICLEWEUSEANEWLYCOMPILEDSETOFINDICATORSONDEMOCRACY
POLITICALSTABILITYANDPOLICYCERTAINTYLINKINGTHESEDATASETSWITHTHOSEFORINTER
NATIONALBANKmOWSDEVELOPEDBYTHE"ANKFOR)NTERNATIONAL3ETTLEMENTS")3

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT