Hostname: page-component-745bb68f8f-cphqk Total loading time: 0 Render date: 2025-02-03T00:12:41.310Z Has data issue: false hasContentIssue false
  • English
  • Français

Institutions and Investors: The Politics of the Economic Crisis in Southeast Asia

Published online by Cambridge University Press:  09 July 2003

Andrew MacIntyre
Get access

Abstract

I develop a systematic argument about the politics of the 1997–98 Asian economic crisis. I focus on institutions—specifically, the connection linking the institutional framework of national politics, the policy environment, and investment. I seek to resolve the tension between the literatures on credible policy commitment and policy flexibility, arguing that if either is severely undersupplied, the risk associated with the policy environment rises rapidly for investors. Building on a veto player framework, I develop a simple model of a U-shaped relationship between the number of veto players in a political system and policy risk to investors. Institutional vetoes on executive authority lower policy risk for investors but only up to a point, after which additional veto players promote unwelcome policy rigidity. I illustrate this using four cases: Thailand, the Philippines, Malaysia, and Indonesia, the four main Southeast Asian countries involved in the financial crisis. I argue that the institutional framework of national politics had a powerful and predictable influence on policy responses and investor reactions.

Type
Articles
Information
International Organization , Volume 55 , Issue 1 , Winter 2001 , pp. 81 - 122
Copyright
Copyright © The IO Foundation 2001

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ammar, Siamwalla. 1997. Why Are We in This Mess? J. Douglas Gibson Lecture, Queen's University, Kingston, Ontario.Google Scholar
Anusorn, Limmanee. 1998. Thailand. In Political Party Systems and Democratic Development in East and Southeast Asia, vol. 1, edited by Sachsenroder, Wolfgang and Frings, Ulrike E., 403–48. Aldershot: Ashgate.Google Scholar
Athukorala, Prema-chandra. 1998. Malaysia. In East Asia in Crisis: From Being a Miracle to Needing One, edited by McLeod, Ross H. and Garnaut, Ross, 85–104. London: Routledge.Google Scholar
Balino, Tomas, Enouch, Charles, Gulde, Anne-Marie, Lindgren, Carl-Johan, Quintyn, Marc, and Teo, Leslie. 1999. Financial Sector Crisis and Restructuring: Lessons from Asia. Washington, D.C.: IMF.Google Scholar
Bawn, Kathleen. 1999. Money and Majorities in the Federal Republic of Germany: Evidence for a Veto Player's Model of Government Spending. American Journal of Political Science 43 (3):707–36.CrossRefGoogle Scholar
Bergara, Mario, Henisz, Witold, and Spiller, Pablo. 1998. Political Institutions and Electric Utility Investment: A Cross-Nation Analysis. California Management Review 40 (2): 18–35.CrossRefGoogle Scholar
Bhanupong, Nidhiprabha. 1998. Economic Crises and the Debt-Inflation Episode in Thailand. ASEAN Economic Bulletin 15 (3):309–18.Google Scholar
Birchfield, Vicki, and Crepaz, Markus. 1998. The Impact of Constitutional Structures and Collective and Competitive Veto Points on Income Inequality in Industrialized Democracies. European Journal of Political Research 34 (2): 175–200.CrossRefGoogle Scholar
Borner, Silvio, Brunetti, Ayme, and Weder, Beatrice. 1995. Political Credibility and Economic Development. New York: St. Martin's Press.CrossRefGoogle Scholar
Case, William. 1996. UMNO Paramountcy: A Report on Single-Party Dominance in Malaysia. Party Politics 2 (1): 115–27.CrossRefGoogle Scholar
Cooper, Richard N., and Sachs, Jeffrey D.. 1985. Borrowing Abroad: The Debtor's Perspective. In International Debt and the Developing Countries, edited by Smith, Gordon W. and Cuddington, John T., 21–60. Washington, D.C.: World Bank.Google Scholar
Coronel, Sheila S., ed. 1998. Pork and Other Perks: Corruption and Governance in the Philippines. Quezon City: Philippines Center for Investigative Journalism.Google Scholar
Cowhey, Peter. 1993. Domestic Institutions and the Credibility of International Commitments: Japan and the United States. International Organization 47 (2):299–326.CrossRefGoogle Scholar
Crouch, Harold A. 1996. Government and Society in Malaysia. Ithaca, N.Y.: Cornell University PressCrossRefGoogle Scholar
de Dios, Emmanuel, and Esfahani, Hadi Salehi. Forthcoming. Government and Investment in the Philippines. In Corruption: The Boom and Bust of East Asia, edited by Campos, J. E.. Manila: Ateneo University Press.Google Scholar
de Dios, Emmanuel, Diokno, Benjamin, Fabella, Raul, Medalla, Felipe, and Monsod, Solita. 1997. Exchange Rate Policy: Recent Failures and Future Tasks. Public Policy 1 (1):15–41.Google Scholar
Diamond, Douglas W., and Dybvig, Philip H.. 1983. Bank Runs, Deposit Insurance, and Liquidity. Journal of Political Economy 91 (3):401–19.CrossRefGoogle Scholar
Dittmer, Lowell, Fukui, Haruhiro, and Lee, Peter, eds. 1999. Informal Politics in East Asia. New York: Cambridge University Press.Google Scholar
Doner, Richard F. 1992. The Limits of State Strength: Toward an Institutionalist View of Economic Development. World Politics 44 (3):398–431.CrossRefGoogle Scholar
Fama, Eugene F. 1980. Agency Problems and the Theory of the Firm. Journal of Political Economy 88 (2):288–307.CrossRefGoogle Scholar
Fane, George, and McLeod, Ross. 1999. Lessons for Monetary and Banking Policies from the 1997–98 Economic Crises in Indonesia and Thailand. Paper presented to the American Economics Association, 3–5 January, New York.CrossRefGoogle Scholar
Gomez, Edmund Terence. 1998. Malaysia. In Political Party Systems and Democratic Development in East and Southeast Asia, vol. 1, edited by Sachsenroder, Wolfgang and Frings, Ulrike E., 226–88. Aldershot: Ashgate.Google Scholar
Gomez, Edmund Terence, and Jomo, K. S.. 1997. Malaysia's Political Economy: Politics, Patronage, and Profits. Cambridge: Cambridge University Press.Google Scholar
Grenville, Stephen. 1999. Capital Flows and Crises. Asian-Pacific Economic Literature 13 (2): 1–15.CrossRefGoogle Scholar
Haggard, Stephan. 1990. Pathways from the Periphery: The Politics of Growth in the Newly Industrializing Countries. Ithaca, N.Y.: Cornell University Press.Google Scholar
Haggard, Stephan. Forthcoming. The Political Economy of the Asian Financial Crisis. Washington, D.C.: Institute for International Economics.Google Scholar
Haggard, Stephan, and Kaufman, Robert R.. 1995. The Political Economy of Democratic Transitions. Princeton, N.J.: Princeton University Press.Google Scholar
Haggard, Stephan, and Low, Linda. 1999. The Politics of Capital Controls in Malaysia. Unpublished manuscript, Graduate School of International Relations and Pacific Studies, University of California, San Diego.Google Scholar
Haggard, Stephan, and McCubbins, Matthew, eds. 2000. Presidents, Parliaments, and Policy. New York: Cambridge University Press.Google Scholar
Hallerberg, Mark, and Basinger, Scott. 1998. Internationalization and Changes in Tax Policy in OECD Countries: The Importance of Domestic Veto Players. Comparative Political Studies 31 (3):321–52.CrossRefGoogle Scholar
Henisz, Witold J. 1999. The Institutional Environment for Multinational Investment. Working Paper 2000–01. Philadelphia: Reginald H. Jones Center for Management, Strategy, and Organization, University of Pennsylvania.Google Scholar
Henisz, Witold J. 2000. The Institutional Environment for Economic Growth. Economics and Politics 12(1):1–31.CrossRefGoogle Scholar
Henisz, Witold, and Zelner, Bennet. 1999. The Institutional Environment for Telecommunications Investment. Unpublished manuscript, Wharton School of Management, University of Pennsylvania.Google Scholar
Hewison, Kevin, ed. 1997. Political Change in Thailand: Democracy and Participation. London: Routledge.CrossRefGoogle Scholar
Hicken, Allen. 1998. From Patronage to Policy: Political Institutions and Policy Making in Thailand. Paper presented at the 20th Annual Midwest Political Science Association Meeting, 23–25 April, Chicago.Google Scholar
Hicken, Allen. 1999. Political Parties and Linkage: Strategic Coordination in Thailand. Paper presented at the 95th Annual Meeting of the American Political Science Association, 2–5 September, Atlanta.Google Scholar
Hill, Hal. 1998. An Overview of the Issues. ASEAN Economic Bulletin 15 (3):261–71.CrossRefGoogle Scholar
Hill, Hal. 1999. The Indonesian Economy in Crisis: Causes, Consequences, and Lessons. Singapore: Institute of Southeast Asian Studies.CrossRefGoogle Scholar
Huber, Evelyne, Ragin, Charles, and Stephens, John D.. 1993. Social Democracy, Christian Democracy, Constitutional Structure, and the Welfare State. American Journal of Sociology 99 (3):711–49.CrossRefGoogle Scholar
Hutchcroft, Paul D. 1998. Booty Capitalism: The Politics of Banking in the Philippines. Ithaca, N.Y.: Cornell University Press.CrossRefGoogle Scholar
Hutchcroft, Paul D. 1999. Neither Dynamo Nor Domino: Reform and Crises in the Philippine Political Economy. In The Politics of the Asian Economic Crisis, edited by Pempel, T. J., 163–83. Ithaca, N.Y.: Cornell University Press.Google Scholar
Immergut, Ellen M. 1990. Institutions, Veto Points, and Policy Results: A Comparative Analysis of Health Care. Journal of Public Policy 10 (4):391–416.CrossRefGoogle Scholar
Intal, Ponciano JrMilo, Melanie, Reyes, Celia, and Basilio, Leilanie. 1998. The Philippines. In East Asia in Crisis: From Being a Miracle to Needing One?, edited by McLeod, Ross H. and Garnaut, Ross, 145–61. London: Routledge.Google Scholar
Johnson, Chalmers. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–75. Stanford, Calif.: Stanford University Press.CrossRefGoogle Scholar
Jomo, K. S. 1998a. Malaysia: From Miracle to Debacle. In Tigers in Trouble: Financial Governance, Liberalisation, and Crises in East Asia, edited by Jomo, K. S., 181–98. London: Zed Books.Google Scholar
Jomo, K. S. 1998b. Malaysian Debacle: Whose Fault? Cambridge Journal of Economics 22 (6):707–22.CrossRefGoogle Scholar
Juoro, Umar. 1998. Indonesia. In Political Party Systems and Democratic Development in East and Southeast Asia, vol. 1, edited by Sachsenroder, Wolfgang and Frings, Ulrike E., 194–225. Aldershot: Ashgate.Google Scholar
Kasuya, Yuko. 1999. Presidential Connection: Parties and Party Systems in the Philippines. Unpublished manuscript, Graduate School of International Relations and Pacific Studies, University of California, San Diego.Google Scholar
Katzenstein, Peter J., ed. 1978. Between Power and Plenty: Foreign Economic Policies of Advanced Industrial States. Madison: University of Wisconsin Press.Google Scholar
Keefer, Philip, and Stasavage, David. 1999. Bureaucratic Delegation and Political Institutions: When Are Independent Central Banks Irrelevant? Paper presented at the 95th Annual Meeting of the American Political Science Association, 3–5 September, Atlanta.Google Scholar
Kiewiet, D. Roderick, and McCubbins, Matthew D.. 1991. The Logic of Delegation: Congressional Parties and the Appropriation Process. Chicago: University of Chicago Press.Google Scholar
Kreppel, Amie. 1997. The Impact of Parties in Government on Legislative Output in Italy. European Journal of Political Research 31 (3):327–50.CrossRefGoogle Scholar
Krugman, Paul. 1979. A Model of Balance-of-Payments Crises. Journal of Money, Credit, and Banking 11 (3):311–25.CrossRefGoogle Scholar
Lauridsen, Laurids S. 1998. Thailand: Causes, Conduct, Consequences. In Tigers in Trouble: Financial Governance, Liberalisation, and Crises in East Asia, edited by Jomo, K. S., 137–61. London: Zed Books.Google Scholar
Leones, Errol B., and Moraleda, Miel. 1998. Philippines. In Political Party Systems and Democratic Development in East and Southeast Asia, vol. 1, edited by Sachsenroder, Wolfgang and Frings, Ulrike E., 289–342. Aldershot: Ashgate.Google Scholar
Levy, Brian, and Spiller, Pablo J., eds. 1996. Regulations, Institutions, and Commitment: Comparative Studies of Telecommunications. New York: Cambridge University Press.CrossRefGoogle Scholar
Lijphart, Arend. 1999. Patterns of Democracy: Government Forms and Performance in Thirty-Six Countries. New Haven, Conn.: Yale University Press.Google Scholar
Lim, Joseph Y. 1998. The Philippines and the East Asian Economic Turmoil. In Tigers in Trouble: Financial Governance, Liberalisation, and Crises in East Asia, edited by Jomo, K. S., 199–221. London: Zed Books.Google Scholar
MacIntyre, Andrew. 1992. Politics and the Reorientation of Indonesian Economic Policy. In The Dynamics of Economic Policy Reform in Southeast Asia and the Southwest Pacific, edited by MacIntyre, Andrew and Jayasuriya, Kanishka, 138–57. Singapore: Oxford University Press.Google Scholar
MacIntyre, Andrew. 1999. Political Parties, Accountability, and Economic Governance in Indonesia. In Democracy, Governance, and Economic Performance: East and Southeast Asia, edited by Marsh, Ian, Blondel, Jean, and Inoguchi, Takashi, 261–86. Tokyo: United Nations University Press.Google Scholar
MacIntyre, Andrew, ed. 1994. Business and Government in Industrializing Asia. Ithaca, N.Y.: Cornell University Press.Google Scholar
McLeod, Ross H. 1998. Indonesia. In East Asia in Crisis: From Being a Miracle to Needing One, edited by McLeod, Ross H. and Garnaut, Ross, 31–48. London: Routledge.CrossRefGoogle Scholar
Mijares, Roy. 1999. Philippine Resiliency to the Asian Financial Crisis. RIM: Pacific Business and Industries 43 (1):28–40.Google Scholar
Milne, R. S., and Mauzy, Diane K.. 1999. Malaysian Politics Under Mahathir. London: Routledge.Google Scholar
Moe, Terry, and Caldwell, Michael. 1994. The Institutional Foundations of Democratic Government: A Comparison of Presidential and Parliamentary Systems. Journal of Institutional and Theoretical Economics 150 (l):171–95.Google Scholar
Montes, Manuel. 1999. The Philippines as an Unwilling Participant in the Asian Economic Crisis. In Asian Contagion: The Causes and Consequences of a Financial Crisis, edited by Jackson, Karl D., 241–68. Boulder, Colo.: Westview Press.Google Scholar
Montinola, Gabriella. 1999. Parties and Accountability in the Philippines. Journal of Democracy 10 (1):126–40.CrossRefGoogle Scholar
Montinola, Gabriella, Qian, Yingyi, and Weingast, Barry. 1995. Federalism, Chinese Style: The Political Basis for Economic Success in China. World Politics 48 (1):50–81.CrossRefGoogle Scholar
Moser, Robert. 1999. Electoral Systems and the Number of Parties in Postcommunist States. World Politics 51 (3):359–84.CrossRefGoogle Scholar
North, Douglass C., and Thomas, Robert Paul. 1973. The Rise of the Western World: A New Economic History. New York: Cambridge University Press.CrossRefGoogle Scholar
North, Douglass C., and Weingast, Barry R.. 1989. Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in 17th-Century England. Journal of Economic History 49 (4):803–32.CrossRefGoogle Scholar
Nukul Commission Report. 1998. Analysis and Evaluation of Facts Behind Thailand's Economic Crisis. English ed. Bangkok: The Nation.Google Scholar
Obstfeld, Maurice. 1994. The Logic of Currency Crises. NBER Working Paper Series 4640. Cambridge, Mass.: National Bureau of Economic Research.Google Scholar
Obstfeld, Maurice. 1995. Models of Currency Crises with Self-Fulfilling Features. NBER Working Paper Series 5285. Cambridge, Mass.: National Bureau of Economic Research.Google Scholar
Pasuk, Phongpaichit, and Baker, Chris. 1998. Thailand's Boom and Bust. Bangkok: Silkworm Books.Google Scholar
Pasuk, Phongpaichit, and Baker, Chris. 1999. The Political Economy of the Thai Crisis. Journal of the Asia Pacific Economy 4 (1):193–208.Google Scholar
Pempel, T. J., ed. 1999. The Politics of the Asian Economic Crisis. Ithaca, N.Y.: Cornell University Press.CrossRefGoogle Scholar
Pincus, Jonathon, and Ramli, Rizal. 1998. Indonesia: From Showcase to Basket Case. Cambridge Journal of Economics 22 (6):723–34.CrossRefGoogle Scholar
Radelet, Steven, and Sachs, Jeffrey. 1998. The East Asian Financial Crisis: Diagnosis, Remedies, Prospects. Brookings Papers on Economic Activity 1:1–90.CrossRefGoogle Scholar
Rais, Yatim. 1995. Freedom Under Executive Power in Malaysia: A Study of Executive Supremacy. Kuala Lumpur: Endowment Press.Google Scholar
Robison, Richard, and Rosser, Andrew. 1998. Contesting Reform: Indonesia's New Order and the IMF. World Development 26 (8): 1593–1609.CrossRefGoogle Scholar
Root, Hilton L. 1989. Tying the King's Hands: Credible Commitments and Royal Fiscal Policy During the Old Regime. Rationality and Society 1 (2):240–58.CrossRefGoogle Scholar
Root, Hilton L. 1996. Small Countries, Big Lessons: Governance and the Rise of Asia. Hong Kong: Oxford University Press.Google Scholar
Ross, Stephen A. 1973. The Economic Theory of Agency: The Principal's Problem. American Economic Review 63 (2): 134–39.Google Scholar
Shirk, Susan L. 1993. The Political Logic of Economic Reform in China. Berkeley: University of California Press.CrossRefGoogle Scholar
Shugart, Matthew. 1999. Efficiency and Reform: A New Index of Government Responsiveness and the Conjunction of Electoral and Economic Reform. Unpublished manuscript, Graduate School of International Relations and Pacific Studies, University of California, San Diego.Google Scholar
Shugart, Matthew, and Carey, John M.. 1992. Presidents and Assemblies: Constitutional Design and Electoral Dynamics. New York: Cambridge University Press.CrossRefGoogle Scholar
Sicat, Gerardo. 1998. The Philippine Economy in the Asian Crisis. ASEAN Economic Bulletin 15 (3):290–96.CrossRefGoogle Scholar
Singson, Gabriel. 1998a. The Philippines: From Crisis to Recovery. Address of the Bangko Sentral ng Pilipinas at the Financial Seminar Plenary Session: Pulling out of the Asian Financial Crisis, 7 April, New York.Google Scholar
Singson, Gabriel. 1998b. The Philippines: Capitalizing on Sustained Financial Stability. Address of the Bangko Sentral ng Pilipinas Governor at the Euromoney Conference: The Philippines in Asia—Leading in a New Investment Era, Shangri-La Manila Hotel, 11 November, Makati City.Google Scholar
Soesastro, Hadi, and Basri, M. Chatib. 1998. Survey of Recent Developments. Bulletin of Indonesian Economic Studies 34 (1):3–54.CrossRefGoogle Scholar
Steinmo, Sven. 1989. Political Institutions and Tax Policy in the United States, Sweden, and Britain. World Politics 41 (4):500–35.CrossRefGoogle Scholar
Tsebelis, George. 1995. Decision Making in Political Systems: Veto Players in Presidentialism, Parliamentarism, Multicameralism, and Mulitpartyism. British Journal of Political Science 25 (3): 289–325.CrossRefGoogle Scholar
Tsebelis, George. Forthcoming. Veto Players and Institutional Analysis. Governance 13.Google Scholar
Wade, Robert. 1990. Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Princeton, N.J.: Princeton University Press.CrossRefGoogle Scholar
Warr, Peter G. 1998. Thailand. In East Asia in Crisis: From Being a Miracle to Needing One?, edited by McLeod, Ross H. and Garnaut, Ross, 49–65. London: Routledge.Google Scholar
Weaver, R. Kent, and Rockman, Bert A., eds. 1993. Do Institutions Matter? Government Capabilities in the United States and Abroad. Washington, D.C.: Brookings Institution.Google Scholar
Weingast, Barry R. 1995. The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development. Journal of Law, Economics, and Organization 11 (1):1–31.Google Scholar
Woo-Cumings, Meredith. 1991. Race to the Swift: State and Finance in Korean Industrialization. New York: Columbia University Press.Google Scholar
World Bank. 1998. Indonesia in Crisis: A Macroeconomic Update. Washington, D.C.: World Bank.Google Scholar