The Political Economy of Capital Market Reforms in Southeast Asia

Abstract

The Political Economy of Capital Market Reforms in Southeast Asia. By Xiaoke Zhang. New York: Palgrave Macmillan, 2011. Pp. 288. The main argument of book is that structure of political parties in three Southeast Asian countries of Singapore, Malaysia and Thailand determine conceptualization and implementation of capital market reforms. The more party structure and greater internal organizational strength of party in power, greater probability that regarding or public welfare enhancing will be implemented. The author then relates successful capital market reforms and implementation of reforms political party structure and internal strength of party. Using this conceptual model he argues that Singapore government was more successful in implementing credible and effective capital market reforms that transformed Singapore into an international financial centre in comparison Malaysia and Thailand. He also argues that Malaysia was more successful than Thailand in implementing capital market reforms because its political power structure was more stable than that of Thailand. Furthermore, only one dominant party in a coalition of parties had been in power in Malaysia whereas there has been tremendous political change in Thailand over period of study, that is, 1980 present. The author also argues that external factors were not as important as internal factors in motivating capital market reforms in Singapore. He asserts that internal pressures of electorate were more important to extent that electorate as a whole preferred such public goods as capital market reforms, which stood enhance social welfare, government had a strong incentive initiate and enact these policies (p. 108, para. 1). He also argues that concentrated party system and internal organizational strength of PAP enabled government implement economic strategies for long public good, even if they harmed interests of specific social groups and were unpopular in short term (p. 109). However, in sharp contrast, Malaysia's capital market reforms were often subverted by rent-seeking behaviour by powerful interest groups within dominant party structure. The author claims, the public-regarding orientation of reforms that stemmed from party system concentration was significantly diluted by rent-seeking behavior of politicians, which derived mainly from intra-UMNO organizational attributes (p. 176). The author argues that efforts liberalize securities industry, make it more competitive, decontrol commission rates and improve capital adequacy of stock broking companies were compromised by powerful interest groups within ruling UMNO party which had vested interests in securities companies and stock broking firms. It appears that UMNO preferred a gradual incremental approach reforms rather than a big bang approach. In Thailand, because of fragmented political power, vested interest groups were able resist reforms and private financiers constantly lobbied for protection of their regulatory privileges and resisted competitive pressures associated with market liberalization ... (p. 145). The Thai government was unable, due fragmented party structures, make much progress in capital market liberalization by mid-1990s. Although number of members of Stock Exchange of Thailand was increased, new seats were captured by cronies of dominant politicians. As a result of more effective implementation of capital market reforms, Singapore ranked much higher than Malaysia and Thailand in terms of enforcement of securities and corporate governance rules, which include financial reporting standards, government efforts improve securities laws, information disclosure, compliance with international best practices, formation of independent board committees and minority shareholder protection (p. …