Liberalization at Any Cost? Implications of IMF Policy for Sovereignty and Stability in East Asia

Abstract

Globalization pits pressures for liberalization against state claims to political and economic sovereignty. Less powerful states in particular face strong pressure from the international trade regime to liberalize their economies irrespective of the impact on domestic stability and national goals. East Asia has been a hold-out against the global trend toward liberalization. This paper shows that the bail-out package demanded by the IMF in 1997 during the East Asian financial crisis imposed unprecedented restrictions on state governance without regard for long-term implications. The paper argues that the IMF's motivation was to harmonize financial governance of the affected economies with Western practices. However, the cost of this initiative to the stability of the region has been overlooked. The East Asian region has carved out for itself a unique niche in the international political economy by resisting penetration of Western finance capital. Already governments have fallen and deep resentments have been sewn over the reversal. More seriously for the future, assumptions that free-market liberalism can be imposed top-down ignore the extent to which economic institutions and preferences are embedded in culture.