Leonardo Martinez‐Diaz
Oxford Univeristy
August 7, 2006
9
opening encapsulates a key dilemma facing peripheral states in the global economy. Foreigners
can bring capital and technology to undercapitalized or underdeveloped banking sectors, but
integration can also introduce new sources of risk and vulnerability. Governments are
responsible with balancing these risks and benefits. What is critical, then, is the capacity of
host‐country governments to manage the timing and form of opening and integration. How
states develop this capacity, and how the process of financial integration affects the
configuration of power inside a country, are core issues of IPE.
Finally, the why and how of banking‐sector opening is also of policy relevance. Recent research
suggests that the timing and sequencing of banking‐sector opening can have long‐term effects
on a host‐country’s regulatory institutions and on the quality of its banking‐sector governance.
5
In addition, the terms under which foreign capital integrates with the local banking system
shape the incentives and behavior of all players in the banking system, and can therefore mean
the difference between a banking system that promotes growth and one that focuses only on
short‐term speculative activity. Because the terms of integration emerge from a process of
political contestation between domestic and foreign actors, understanding the politics of
banking‐sector opening can help us understand the logic behind its economic outcomes.
Why Mexico, Brazil, and Indonesia?
Because this study is concerned with the drivers of banking‐sector opening and with the
capacity of states to manage this process, my sample is composed of three countries that opened
their banking sectors in the 1990s, but which did so with varying degrees of control. In addition
to exhibiting this kind of variation, Mexico, Brazil, and Indonesia also share certain economic
and political characteristics that allow us to control for differences in factors that may also affect
the phenomenon were trying to understand. These similarities and differences in the three
5
See Joshua Hjartarson, Foreign Bank Entry and Financial Sector Transformation in Hungary and Poland, PhD
dissertation, University of Toronto, June 2005.
Convention