Emerging Markets, Influence and
Institutions of Global Financial Governance
A case study of the Financial Stability Board
Master Thesis Political Science Political Economy
Author: Ana Eckhardt Rodriguez Student ID: 11262575
Supervisor: Prof. G. RD Underhill Date: June 23rd 2017
The Global Financial Crisis has shed light on shortcomings of the system of global finan-cial governance. One of the reforms undertaken in order to resolve these shortcomings involved the expansion of the G7 institutions to include all G20 members. This resulted in a formal inclusion of the largest emerging markets into those institutions of global finan-cial governance, from which they were previously excluded. This thesis analyses whether their increased inclusion is also leading to increased influence in policy outputs in the Fi-nancial Stability Board. The thesis argues that their influence is increasing incrementally, based on the advanced economies’ steps to accommodate the rising powers. Their policy recommendations largely focus on other emerging markets and developing economies.
Keywords: Emerging markets, influence, global financial governance, Financial Stability Board, financial regulation
Abstract 3
List of Tables 5
List of Figures 5
Abbreviations and acronyms 6
1 Introduction 7
2 Global financial governance institutions and EMs’ influence 13
2.1 Institutional development and change . . . 13
2.1.1 Institutional formation . . . 14
2.1.2 Path-dependency and ’sticky’ institutions . . . 17
2.1.3 Institutional change . . . 18
2.2 Analytical framework, argument and hypotheses . . . 22
3 Design and Methodology 27 4 Analysis and results: A historical overview and EMs’ influence in the FSB 31 4.1 A historical overview . . . 31
4.2 The centralisation of tasks in the FSB . . . 32
4.2.1 Seats and chairs . . . 33
4.2.2 Revision of the centralisation of tasks . . . 36
4.3 The range of topics covered: Topics of concern to EMDEs and their inclu-sion into the FSB . . . 38
4.3.1 Addressing EMDEs . . . 39
4.3.2 EMDEs Task Force and Forum Reports . . . 40
4.3.3 Other topics of concern . . . 47
4.4 Epistemic communities . . . 52
5 Conclusion 55
References 57
1 Documents and analytical focus . . . 27
2 Institutional bodies for quantitative analysis . . . 28
3 Range of topics of RCGs and FSB Plenary . . . 42
4 Range of topics by countries and FSB bodies . . . 48
A1 List of FSB governance review and EMDEs Task Force/Forum reports . . . 61
A2 List of RCGs and Plenary meetings . . . 62
A3 List of national authorities’ websites and press releases . . . 63
List of Figures
1 Share of seats . . . 342 Share of chairs . . . 34
AEs . . . Advanced Economies
AM . . . RCG for the Americas AR . . . Argentina
Asia . . . RCG for Asia
BCBS . . . Basel Committee on Banking Supervision BR . . . Brazil
CIS . . . RCG for the Commonwealth of Independent States CN . . . China
DEs . . . Developing Economies
E . . . RCG for Europe EMs . . . Emerging Markets
EMDEs . . . Emerging Markets and Developing Economies EMEs . . . Emerging Market Economies
FIs . . . Financial Institutions FSB . . . Financial Stability Board FSF . . . Financial Stability Forum GFC . . . Global Financial Crisis
G-SIFI . . . Global Systemically Important Financial Institutions HI . . . Historical Institutionalism
IASB . . . International Accounting Standards Board IMF . . . International Monetary Fund
ID . . . Indonesia
IN . . . India
IOSCO . . . International Organization of Securities Commissions KR . . . South Korea
MENA . . . RCG for the Middle East and North Africa MX . . . Mexico
PT . . . Process Tracing
RCG . . . Regional Consultative Group RCI . . . Rational Choice Institutionalism
SA . . . Saudi Arabia
SI . . . Sociological Institutionalism SSA . . . RCG for Sub-Saharan Africa
TR . . . Turkey WB . . . World Bank ZA . . . South Africa
1 Introduction
The global financial crisis (GFC) has shed light on a variety of shortcomings within the fi-nancial sector and global fifi-nancial governance as a whole. At the same time, the GFC has led to the deepest recession in post-war history, particularly within advanced economies, yet the consequences are being experienced across all countries. Similar to past financial crises, in order to manage the crisis and to prevent future ones, the global governance structure had to undergo a series of reforms. These reforms targeted both content, in the form of policies, and structure. The attempted management of the crisis has focused on financial stability at the level of international financial regulation. In general however, a number of the institutional reforms targeted the inclusion of the largest emerging markets (EMs) or rising powers. Indeed, they have participated in the management of the crisis and their permanent representation in global financial governance institutions such as the G-20, the IMF or the WB was ensured or strengthened.
Prior to the crisis, these emerging markets had largely been underrepresented in or ex-cluded from decision-making positions within the global arena - one of the shortcomings of the financial governance system. This has since changed, as the actions taken to resolve and manage the GFC were based on collaboration. One of the results of this collaboration was the expansion of all G7 institutional bodies to include all the G20 members. Thus, the EMs being structurally included leads to two major consequences.
First, EMs are formally included, thus decreasing their underrepresentation on a global level. Second, being present in the decision-making process offers the opportunity to shape or include concrete policy outputs. However, it remains largely unclear whether there is a causal link between the first consequence and the second consequence. This is where this thesis steps in and therefore attempts to contribute to the existing literature on EMs and global financial governance.
While the structural changes within global financial governance give EMs a de facto oppor-tunity to change or shape policy outputs, the successful use of this opporoppor-tunity is a matter of exercising influence. In a multilateral setting, preferences across countries and types of
economies will vary and thus the decisions and policies decided on will be embedded in a process of power and an institutional setting. With the inclusion of EMs in institutions of global financial governance, the initial set of preferences has broadened, yet the deciding set of preferences will be dependent upon this process of influence. In order to analyse this relationship, this thesis has chosen a descriptive research question, which is as follows:
Is the increased presence of emerging markets in the institutions of global financial gov-ernance resulting in increased influence in decision-making?
Three subsequent aspects follow the research question based on the perspective of influ-ence. The first is whether the formal presence of EMs in these institutions is observable in policy outputs. The second is the way we measure the impact of increased participation in decision-making. The third subsequent aspect focuses on how we might explain the results of the research question.
In order to answer the research question, this thesis focuses on the Financial Stability Board (FSB). The FSB was established in 2009 as the successor to the Financial Stability Forum (FSF), in order to promote international financial stability, improve the functioning of financial markets, reduce the tendency of contagion, and enhance the institutional framework to support global financial stability. It was founded in 1999 by the G7 finance ministers and central bank governors in order to increase cooperation between national and international financial institutions (FIs), and international supervisory bodies. The actions conducted by the FSF had not been sufficient to provide financial stability over time, which led to reforms strengthening the role of its successor, the FSB. Indeed, the FSB was set-up as a new fourth pillar to the global financial governance system in order to promote regulatory convergence and compliance (Helleiner, 2014). It is situated in Basel, Switzerland and legally established as a ‘non-profit association’ under Swiss law.
Our decision to concentrate on the FSB is driven by different considerations. First, the FSB was expanded to include G20 membership and therefore large EMs. More specifically, it has included Argentina, Brazil, The People’s Republic of China (henceforth China), India, Indonesia, South Korea (henceforth Korea), Mexico, Russia, Saudi Arabia, Spain, Turkey, and the European Commission as continuous members of the board. Amongst
these new members, all fall under the category of emerging economies aside from Spain and the European Commission1. Second, its mandate and powers have increased and it is now the leading body in setting international standards for financial stability and in ensuring their implementation. Third, it has also made steps to include non-member countries through creating so-called Regional Consultative Groups (RCGs). These groups are divided into the Americas (AM), Asia, the Commonwealth of Independent States (CIS), Europe (E), the Middle East and North Africa (MENA), and Sub-Saharan Africa (SSA). Within these groups, not only more EMs are represented but also developing economies (DEs). Fourth and last, other bodies such as the International Organization of Securities Commission (IOSCO) or the Basel Committee on Banking Supervision (BCBS) have been analysed more extensively so far, while less focus has been placed on the FSB. In summary, the FSB shows all types of substantive reforms of importance to our research question: institutional reform, the inclusion of EMs, and policy content. The FSB, therefore, represents a useful case in order to answer the research question.
Overall, the research question raises theoretical issues regarding the relationship between institutional changes and power shifts. The literature on institutions gives insights into the steps of their life-cycle: establishment, persistence, and change of institutions.
Rational choice institutionalism argues that institutions are set up to reduce trans-action costs of co-operation. Actors are rational, since they are goal-oriented and follow their preferences, which includes ways of realising their goals. Historical institutional-ism argues that institutions are established in the face of power differentials that give the more powerful actors greater influence in the establishment of specific rules that are applied. This in turn reinforces their political or economic power. Once established, insti-tutions are likely to remain over time. This is because of path-dependency and ideational adaptation by the powerful actors - the development of a paradigm. However, actors and therefore institutions are reflexive and institutional change does occur over time, as argued by theories of Sociological Institutionalism among others. In particular, external shocks such as a financial crisis or changing (economic) power relations are drivers for institutional change.
As a result, weaker states gaining power (in this case, EMs) try to include their
prefer-1 While Korea is characterised as an AE by most institutions such as the IMF, it is regarded as an
ences into the system, and subsequently the institution will reflect the changed underlying power relations more accurately. At the same time, the adjusted power approach devel-oped by Ayse Kaya (2015) tells us that incumbent states, especially when declining, do accommodate these rising powers. The extent to which they are accommodated remains dependent on the powerful actors, as they will try to maintain their political or material power and to include their preferences as far as possible. Combined with path-dependency and the role of ideational paradigms, institutional changes are therefore likely to occur incrementally, through a process of layering, rather than through radical shifts.
We argue that the inclusion of EMs’ preferences in institutions of global financial gov-ernance such as the FSB increases over time. Based on this literature, we expect that advanced economies (AEs) are making steps to accommodate the newcomers, yet they will remain active in a variety of policy areas, thereby constraining radical changes. EMs, on the other hand, will push to include their interests, most likely focusing on issues of direct concern to their economies rather than the global system. Therefore, both types of economy contribute to incremental institutional change.
In general, this thesis contributes to the literature on institutional change and emerging markets’ influence in global financial governance. Additionally, understanding the provi-sion of financial stability is of utmost social importance, as financial crises and their ten-dency of contagion involve high social costs, e.g. in the form of bailouts. Financial crises do not only bring high costs within individual societies, but also across nations through contagion. For this reason, financial stability can be considered a global public good. The provision of global public goods may be achieved through collective action, which is most successful when compliance is high and moral hazard low. Through the inclusion of emerging markets, higher compliance could be a result, thus improving the benefits at-tained from collective action in international financial regulation. Understanding the role these states play upon their inclusion allows us to derive important implications, particu-larly regarding the legitimacy of the global governance system and international financial regulation. Taking into account the current move away from international cooperation and towards nationalist protection into account (e.g. the US under Trump and Brexit) it is very probable that the emerging markets will even further increase their importance
in supporting the global financial governance structure and the provision of global public goods.
By focusing on the FSB only, this thesis applies a single-case study method. Using a single case allows us to analyse the underlying developments in greater detail, yet also hinders us in generalising our results. However, it does allow us to understand the behaviour of similar units in other settings (Gerring, 2004). In order to answer the leading research question, we use a process tracing (PT) approach. More specifically, as process tracing aims at establishing “whether the events or processes within the case fit those predicted by alternative explanations” (Bennett, 2010, p.208), it is the most suitable method with which to approach the research question posted and hypotheses derived in the thesis. As the hypotheses posited throughout the paper are derived from different theories of influ-ence in institutions, the process tracing employed in the thesis situates itself within the theory-testing process tracing method (Beach & Pedersen, 2013). This form of PT is par-ticularly useful for single case analyses, in this case, one institution. The process tracing will be conducted by employing a qualitative analysis based on a document analysis of the existing decisions and documents available for the FSB, as well as preferences of the FSB’s permanent EMs. For the analysis, we use documents from the FSB’s website as well as from the relevant EMs’ national authorities.
We find that, indeed, the increased inclusion of EMs into institutions of global financial governance is leading to increased influence in decision-making. Additionally, we find that EMs include their preferences in the FSB but with a clear focus on other EMDEs, rather than on overall policy recommendations.
The structure of this thesis is as follows. The first chapter introduced the topic, the re-search question and the case. We have outlined the literature and our main argument and hypotheses, as well as the methodology. The second chapter extends the theoretical points raised in the introduction by giving insight into the current debates about institutional development, which are based on three stages: institutional setup, its persistence or path-dependency, and its change. Chapter two also establishes links between the literature and the global financial governance system. The following section develops our analytical
framework and derives our hypotheses based on the literature discussion. More specifi-cally, it posits the hypotheses on emerging markets’ influence within the FSB. Chapter three provides further insight into our design and methodology and lists the sources used for our analysis. Then, Chapter four briefly introduces the FSF and its changes into the FSB. Within the fourth chapter, we conduct the analyses and discuss the results. Finally, the fifth Chapter concludes and lists possible shortcomings of this thesis.
2 Global financial governance institutions and EMs’ influence
In order to research whether the inclusion of EMs into global financial governance institu-tions is leading to increased influence, we first have to establish the concept of instituinstitu-tions in global (financial) governance and how they emerge and change over time. An essential part of this process is based on influence and power within these and the financial gover-nance system as a whole. The first part of this chapter deals with these debates among the literature. The following second part develops our analytical framework based on the key aspects of the literature and derives hypotheses for our case.2.1 Institutional development and change
There are three phases in the life of institutions: i) the formation of institutions, ii) path-dependency, and iii) institutional change. As mentioned above, a key driver within all three phases of institutional development is power and influence. The literature on institutions gives us an understanding of how this relationship works throughout all in-stitutional phases. The most widely shared concept of institutions defines them as formal or informal socio-political arrangements – a set of rules – that structure interactions be-tween agents in certain ways (see, for instance Knight, 1992; Rodrik, 2002). Hall and Taylor (1996) delineate three analytical approaches or so called new ‘institutionalisms’ that share the above broad definition of institutions, yet conceptualise their origins and structures differently, based on varying world views: i) historical institutionalism (HI); ii) rational choice institutionalism (RCI); and iii) sociological institutionalism (SI). Two con-ceptualisations of actors can be found across the different institutionalisms: the calculus and the cultural approach. The calculus approach defines actors as utility-maximisers, who act upon strategic calculations, while the cultural approach characterises them as satisfiers who act based on interpretations of situations. However, each institutionalism provides different explanation for institutional formation, persistence, and change. The combination of these characteristics and their extension within the literature gives a useful starting point in understanding the underlying institutional phases.
2.1.1 Institutional formation
According to Hall and Taylor (1996), rational choice institutionalists follow the calculus approach. They view politics as a continuous series of collective action problems, yet actors refrain from acting individually due to missing institutional arrangements guaran-teeing complementary behaviour by others. Therefore, within RCI, the role of institutions is to reduce transaction costs and uncertainty, as well as to monitor and enforce compli-ance of other actors. This allows us to understand why institutions are built: cooperation gives higher benefits than individual action. However, this calculus approach might come up short in explaining all actions, as some actions might be based on more complex motivations.
Kaya’s (2015) basic rational actor framework expands the RCI notion of actors’ pref-erences. Ayse Kaya conceptualises state-actors as goal-oriented and having rank-ordered preferences, yet acknowledges that full rationality is not present in every instance and that actors are not always capable of processing all necessary information when defining their preferences. This conceptualisation of the individual is defined as bounded-rational (see Simon, 1972). A broader version of the rational actor is also found within HI and SI. Hall and Taylor (1996) find that HI uses both characteristics of actors while SI follows the cultural approach with some further nuance (a normative dimension). Therefore, the basic rational actor framework accounts for additional factors common to HI and SI. In this case, actors and therefore institutions are reflexive on either their configurations or on their normative stand.
Historical institutionalism provides us with an understanding of why certain types of institutions emerge over others. HI has an emphasis on asymmetries of power associated with the operation and development of institutions (Hall & Taylor, 1996). Institutions give disproportionate access to the decision-making process – the creation of ‘winners’ and ‘losers’ then follows. These influence asymmetries drive the institution’s choices, in the form of its set-up, the interests included or the exclusion of opposition – the so-called two faces of power (Bachrach & Baratz, 1962). There are different forms of power in global governance institutions: i) compulsory power2, ii) institutional power, iii) structural power, and iv) productive power (Barnett & Duvall, 2005). In particular,
compulsory and institutional power are useful to explain institutional formation.
Firstly, compulsory power represents direct power that some actors have over others and can therefore use to enforce certain actions. This is similar to Hurrell’s (2004) concept of conditionality and coercion. In this dimension of power, those actors in power are able to condition the membership and participation in economic or political institutions and other groups. Even when the decisions made within this context are in the form of soft law, powerful states are able to shape and influence the process of integration (Hurrell, 2004). Explanations for why powerful institutional members might have an interest in excluding other actors might be derived from club theory, as institutions are often representative of clubs (see Drezner, 2008). Club theory builds off of two main assumptions: i) that there is an infinite optimal “club member number” - an optimal club size, and ii) that the overall population can be divided into optimum size sharing groups (Berglas, 1976). If the number of members exceeds the optimal point, the costs of the distribution of costs and benefits, as well as monitoring the compliance of members might be higher than the benefits provided by the institution. Therefore, actors holding compulsory power have an incentive to limit the membership when setting up institutions.
Secondly, institutional power is defined by the ability of powerful actors to choose the specific institutional structure employed (Barnett & Duvall, 2005; Hurrell, 2004). Those in power have the ability to choose the type of institution that maximises their returns while at the same time maximising control and influence over others. Indeed, the dis-tinctive type of institution that develops depends on its underlying power configuration (Ikenberry, 2012). Ikenberry develops three distinctive logics of power upon which the international order or hierarchy is based: balance, command, and consent. For instance, the second logic of order, command, is characterised by material power differences. In this case, institutions developed to mirror the inter-state economic power asymmetry (see for example Schweller & Priess, 1997; Gilpin, 1983; Brooks & Wohlforth, 2009; Kirshner, 2012). Overall, the actors holding power will influence all key features of institutions: i) membership rules; ii) centralisation of tasks; iii) rules for controlling the institution (e.g. voting rights); and iv) the flexibility of arrangements (Koremenos et al., 2001).
Applying the above concepts on institutions of global financial governance, decision-making and rules focused on developed economies’ needs (Claessens et al., 2008). EMDEs
following alternative models of capitalism “suffered a series of reversals that neo-liberal tri-umphalists later interpreted as having been inevitable” (Henning & Walter, 2016, p.4) and the countries were urged to adopt Western practices in different financial and monetary areas such as banking and securities supervision or policy transparency (Walter, 2008b). Additionally, with the internationalisation of finance in the second financial revolution, a growing structural tension between financial liberalisation and regulation developed, overall leading to a response of financial de-regulation (Cerny, 1997). The most logical explanation for this development is based on the advanced economies’ higher prosperity following the liberalisation (Becker, 2009). In general, the institutional structures adopted depend on the way the relevant actors interpret the situation, their knowledge, and the power relations (ibid.). Therefore, advanced economies are the powerful actors shaping institutional settings and can be characterised as rulers within a ‘command’ logic of order. Meanwhile, EMDEs are the followers binding by these rules. Institutional and compul-sory power, therefore, lie in the hands of AEs - at least prior to the GFC.
While the above literature focuses on states as actors, institutional formation is also influenced by private interests. In general, states hold the policy-making power and certain rules are needed for an economy to function (Friedman, 1962). On a global level, however, the rule-making is no longer managed by the state alone (Braithwaite & Drahos, 2000; Zürn, 2002; Kaul et al., 2003). Other actors, such as private actors or civil society groups, do actively shape the formulation of policies and rules. Some of these mechanisms of exercising influence have been more formally institutionalised, e.g. actively asking for comments on drafts (Pagliari & Young, 2016). These aspects are, in line with the other strand of literature, addressing the issue of interest representation in financial regulation, namely that the diversity of interests within decision-making is of strong importance for economic analyses. The lower the variety of interests and the higher the power differences between private and public actors, e.g. in the form of information advantages, the more likely there is regulatory capture. Regulatory capture may be defined as a confluence of campaign finance, ideology or cultural capital, and personnel connections (Baker, 2010). In this case, the power of policy-making lies in the hands of the regulated rather than the regulators. The diversity of interests might decrease further when regulators are encouraged to accept and adopt private interests’ preferences because of indirect offers
of future careers within the regulated industry (Makkai & Braithwaite, 1992). This issue of revolving doors would mean that public policy makers jump back and forth from the public sphere to the private sphere. In this case, institutional and productive powers lie in the hands of a few actors who share similar preferences.
2.1.2 Path-dependency and ’sticky’ institutions
Once developed, the specific type of institution is likely to be preserved over time, for which HI and SI give explanations. As mentioned above, HI explains this continuance based on path-dependency. Under this notion, institutional outcomes depend on dis-tinctive features from the past (see Hall & Taylor, 1996). This path-dependency comes together with the power approach. When institutions are set up based on and follow the powerful actors’ preferences, they follow the logic of command, which reinforces the political resources of those who have power in the first place (see Martin, 1977). In this case, those having economic power do have political power in institutional choice, which produces outputs that reinforce their political and perhaps even economic power. Bene-fitting from this loop might explain why powerful actors have an incentive to maintain these institutions.
SI, on the other hand, bases the preservation of institutions on the role of ideas and the continuous replication of them. This is more closely connected to the issue of pro-ductive power. In this case, the powerful states develop institutions based on a certain idea of how to structure the system. This idea is continuously replicated by the institu-tional members. As mentioned above, this, in turn, may influence the actors’ identity. A possible result is the development of a paradigm. Paradigms can be defined as “widely shared, dominant ideas and ways of thinking that are relatively immune against criti-cisms” (Becker, 2009, p.116). These groups of people adopting a paradigm can be called epistemic communities. According to Haas (1992), epistemic communities share a certain set of normative and principled beliefs, which are derived from analysis and notions of inter-subjectively defined criteria for validating knowledge. Academic learning processes, in particular within the area of economics, do play a role in the development of epistemic communities (Blyth, 2013). As Andrew Baker (2010, p.660) puts it:
economics qualifications from the leading Anglo-American graduate schools, arguments from banks about their capacity to manage their own risk took hold in regulatory policy communities with relative ease, as such arguments largely resonated with the formal train-ing of regulators and policy-makers. In this respect, the informal, club-like attributes of many of the leading international fora also facilitated a highly consensual form of ‘group-think’.”
Becker (2009), however, expands this by arguing that people can become part of an epis-temic community without sharing such core beliefs, but by following interest-related mo-tives such as opportunism or imitation. This aspect comes together with the assumption of the basic rational actor. Weaker actors might choose to become part of an epistemic community in order to maximise their benefits. At the same time, the same ideas might be replicated because of regulatory capture and revolving doors.
2.1.3 Institutional change
In general, even though institutions are ‘sticky’, they are not immune to change. Partic-ularly at critical junctures (e.g. moments of social and political fluidity), actors’ choices are freer and more influential in driving institutional development (Swidler, 1986). This means that the logic of power listed above are fluid and may shift over time, based on external shifts.
Mahoney and Thelen (2009) focus on how the power-distributional approach in HI provides the driver for change. A power shift will lead the actors gaining power to seek to alter the system to include their interests and “the resulting changed system will reflect the new distribution of power and the interests of its new dominant members” (Gilpin, 1983, p.9).
At the same time, incumbent institutional members might actively accommodate new-comers. Kaya’s (2015) theoretical framework, the so-called adjusted power approach, provides insight into this development. The extent to which incumbent members accom-modate newcomers depends on the incumbents’ perceptions of the roles, functions, and purposes, newcomers play in the institutions. In this sense, the ‘design’ reflects dominant states’ preferences more strongly, yet it does not exclude compromise or considerations of others (Kaya, 2015). Especially when dominant states experience a decline, they will
allow further accommodation of rising powers – if they perceive these states as crucial for the core functions and purposes of the institution (ibid.). The second variable affecting the influence of newcomers is the institution’s financing or the financial burden-sharing and their relations to the first factor. Within the framework of adjusted power, Kaya acknowledges that finance might not be the only factor an institution faces regarding burden-sharing. Nevertheless, financial contribution and voice are explicitly and implic-itly connected. The former connection is, for instance, the direct translation of financial contribution into the institution into political power such as voting shares. The latter might be experienced through increased demands for voice the higher the contributions.
Finally, Kaya lists rules and conventions as an explanatory factor for incremental in-stitutional change. More specifically: “inin-stitutionally dominant states will protect their position, to the greatest extent possible. Another reason for incremental change concerns the fact that the agenda of today will be shaped by the agenda of yesterday” (Kaya, 2015, p.40). Indeed, the power-distributional approach as a basic motor for change is common within institutionalism theories, as mentioned above.
While the literature above has largely focused on political and social fluidity, economic power shifts are very much part of critical junctures. This is, in particular, the case when keeping in mind that material power drives a distinctive institutional order, as argued by the logic of command (Ikenberry, 2012). Financial and economic crises do also represent critical junctures, as they have been connected to substantial ideational changes (Hall, 1993; Hay, 2004, 2011; Blyth, 2002; Gamble, 2009). Regarding emerging markets, it has been discussed that they have been experiencing fast economic growth vis-à-vis developed economies and have called for greater participation in the existing institutions (Armijo & Katada, 2015). This side of the debate includes the hope that the inclusion of emerging markets into the global financial governance system reflects the shift of power in the real world economy more accurately (see for example Zhang, 2010).
SI provides another aspect, or driver, of change: increasing legitimacy of the institu-tion or the actors within them. Legitimacy refers to the validity of decisions and political orders, the societal acceptance of these decisions and orders, as well as the belief of sub-jects of rule (Zürn, 2004). Low legitimacy leads to growing dissatisfaction with the system and its outputs and limited representation within institutions decreases the quality of the
decisions in the first place (North et al., 2009). Accountability refers to the possibility or lack thereof to hold institutions responsible for their decisions. Scholars have focused on increased globalisation and the shift from national to supranational levels and institutions, both of which make direct accountability more difficult or leading to democratic deficits (see for example Porter, 2001; Reinisch, 2001; Rodrik, 2002). Decreased legitimacy in global financial governance might also result from low plurality in interest representa-tion. Overall, these legitimacy issues might serve as drivers for institutional change, in particular as incumbent actors want to preserve their position and low satisfaction might challenge it.
The way institutional change develops depends on a number of factors. According to Streeck and Thelen (2005), there are four types of institutional change: i) displacement – the removal of existing rules and introduction of new ones; ii) conversion – the rules remain unchanged but there is a change in their enactment, based on their strategic redeployment; iii) drift – the shifted impact of existing rules because of changes in the environment; and iv) layering – new rules are introduced on top of or alongside existing ones.
First, displacement does not have to appear abruptly but may also occur as a slow-moving process – i.e. when new institutions (often set-up by the ‘losers’ of the old system) are introduced and compete with older institutions (Mahoney & Thelen, 2009). Those dis-satisfied with the existing institutional settings will create alternatives that increase their benefits. On the one hand, it is discussed that the neoliberalism paradigm, particularly within financial regulation, has not shifted (Farrell & Quiggin, 2012; Blyth, 2013). On the other hand, the danger of displacement might explain the inclusion of EMs into institu-tions of international financial regulation. It is argued that the expansion of institutional membership was necessary in order to avoid large emerging countries abandoning the current institutions and moving towards or setting up new regional institutions instead (Gnath & Schmucker, 2011). Consequently, this promotes emerging economy partici-pation in global financial governance, but also participartici-pation broadly within the existing liberal world order. More specifically: “Although we expect increasing use of voice and other forms of assertive financial statecraft by the BRICS countries and other emerging powers, this change does not necessarily undercut nor threaten the existing liberal global
economy” (Armijo & Katada, 2015, p.58). ”With the G-20 and FSF now established as part of the new global architecture of financial governance, at least the possibility exists of having to negotiate the terms and conditions of governance” (Germain, 2001, p.422).
Second, conversion occurs through an increased gap between the rules and their imple-mentation through actors exploiting ambiguities of institutions (Streeck & Thelen, 2005). This relates to the theory of clubs, as the inclusion of further members might assure the implementation of the ’rules of the game’ and avoid exposure to unreasonable risks (Schneider, 2009). In relation to emerging markets, “the entry of G20 countries into most of the major international standard-setting bodies puts some emerging country govern-ments in the potential position of being rule-makers rather than rule-takers, which might conceivably raise the political costs of non-compliance” (Walter, 2008a, p.112).
Third, drift leads to a shift in impact due to actors choosing to ignore environmental changes (Mahoney & Thelen, 2009). More specifically, as the environment changes, the institutions no longer can provide effective rules unless they are adapted. This issue is related to the changes induced by the GFC, rather than explaining EMs’ influence. The rules implemented proved to be ineffective at providing financial stability, as they were unsuitable for the changes that occurred in the financial market environment. The changes induced by the crisis can, therefore, be seen as a result of this drift. This is why this aspect will be excluded.
Fourth, layering changes the way original rules structure behaviour by introducing amendments, revisions, and additions to existing rules (Thelen, 2004). Layering addi-tionally might happen due to the lack of capacity of challengers to change the original rules, while defenders of the status quo might be able to preserve original rules yet be unable to stop the introduction of amendments and modifications (Mahoney & Thelen, 2009). This type of institutional change fits best into Kaya’s adjusted power framework. Thus, layering endorses issues of path-dependency and institutional ‘stickiness’ shared by HI and SI while making some space for institutional incumbents in order to increase sat-isfaction and keeping the benefits provided by the institution. Changes in influence will occur incrementally and in a defensive manner rather than towards a radical reformation of the existing system (see for example Armijo & Katada, 2015).
2.2 Analytical framework, argument and hypotheses
In order to derive clear hypotheses regarding the influence of EMs in the institutions of global financial governance following their inclusion, we first have to develop our analyt-ical framework based on the literature above.
The first aspect regards the conceptualisation of the actors in this thesis. As established above, the main actors in this thesis are states. We do not claim that states are the sole actors within global financial governance and rule-making, yet the focus of this thesis lies on country types. Based on this, we argue that states are the driving force in institutional development and change. Following the expanded calculus approach, based on the basic rational state actor, states are goal oriented and have ranked preferences. They follow these preferences when making decisions in institutions, and try to include their interests as far as possible. However, it is also possible for state-actors to act irrationally, and to have limited information processing capabilities limiting their knowledge of best choices. Additionally, states are reflexive, another aspect this conceptualisation of actors shares with HI but also SI. Based on the ‘reflexivity’ of actors and their path-dependency, the EMs’ preferences will vary, at least to some extent, to those from AEs.
Non-varying preferences would rather be the case when private financial market actors influence all decisions made or when EMs regulators are part of the epistemic community. Both are rather unlikely. We are not suggesting that these market players have no say in decision-making but that they will not drive all the outputs. At the same time, the GFC has drawn lessons of too lax private financial market actors’ supervision and regulation, which is why it is likely that more efforts are being done in this direction.
Additionally, while EM regulators might be part of the same epistemic community, meaning that they will have attained their education in the same institutions as AEs regulators, it is possible to hold epistemic community membership without believing in the ideas within it.
EMs are very likely to have other interests and issues, such as disproportionate costs of reform implementation or different market sophistication, when facing financial and economic governance, compared to AEs. However, as established through the literature, these preferences do not necessarily lead to hard fault lines between incumbents and
newcomers. As outlined before, EMs do not seek to alter the system but to include their preferences, which means that they do not oppose AEs’ interests completely. On the contrary, they might even share a number of these preferences, if we keep in mind that financial regulation is situated in an epistemic community structure. The important aspect is that the inclusion of EMs enables these actors to include their specific preferences that are different to those of AEs, and would not be on the agenda without their inclusion. Overall, the way EMs are able to include these interests within the institutions of global financial governance will depend on the underlying logic of power and type of insti-tutional change. Whether declining states deliberately allow the inclusion of rising powers’ preferences in policy outputs, or whether they are unable to prevent the introduction of amendments or modifications can provide important inferences for the relative power emerging markets hold. If advanced economies, or the declining states, actively allow for the inclusion of EMs’ preferences, it suggests that EMs have not experienced a change in real power position – their inclusion still depends on AEs’ willingness. Conversely, when AEs are not able to stop EMs’ preferences in the form of amendments or modifications, it suggests a relative influence increase in favour of these emerging economies. Based on the adjusted power approach, we argue that the level of EMs’ influence in policy-outputs is dependent on AEs’ willingness and steps to accommodate them into the new institution.
The second point derived from HI is that institutions are based on asymmetries of power. Additionally, the institutional set-up mirrors the economic order. At the same time, we argue that the logic of orders might be a result of a mix of factors. For instance, while the institutional set-up might be based on advanced economies’ material power, the order is not static but dynamic. Actors are reflexive and institutional change does happen, as the institutional setting is based on the underlying logic of power (which can also shift). With an external force such as the change of material power caused by the fast economic growth experienced by the rising powers or the global financial crisis, the logic of order is moving from a logic of command towards a logic of consent.
At the same time, the moral purpose, or policy goal, moves from representing the dominant states’ preferences to only providing public goods. In this case, the decision making after the inclusion of EMs is based on consent, or representation of leaders’ and followers’ interests interchangeably. This means that the decisions within the FSB will
sometimes be based on the ‘leaders’ preferences and other times on the ‘followers’ pref-erences. In this case, the leaders of global financial governance are AEs, as established through the literature, while the followers are EMDEs. This ‘nature of hierarchy’ follows logically from the theory on the adjusted power approach and institutional change. More specifically, while declining states will try to keep their power as much as possible, they will accommodate the newcomers, particularly when they perceive them as essential for the institutions and their outputs. From the literature, we can derive that this is the case regarding global financial governance and international financial regulation. It is very likely that advanced economies perceive (large) emerging markets as indispensable for the provision of financial stability, and therefore make steps to accommodate these countries in the institutional setting and decision-making.
This inclusion of preferences will appear incrementally over time, our third conceptual point. Based on HI and SI, institutions are sticky, which provides the first explanation for this incremental approach. This argument was already established within the adjusted power approach. Following the literature of institutional change, we argue that the process will follow a layering approach. This is mostly because all other types of institutional change can be disregarded in the case of international financial regulation.
Firstly, the literature does not provide any evidence for displacement. If there is one one point that is most strongly agreed upon, it is the lack of radical overturn of the global system following the GFC – the missing paradigm shift. At the same time, displacement might only explain the reform towards expanded membership in the FSB, rather than to set expectations on how the inclusion plays out within decision-making.
Secondly, drift instead explains the developments towards the GFC and the crisis re-forms, rather than how the reforms will play out regarding the influence of EM. More specifically, the impact of the policies decided before the crisis has not been sufficient to provide financial stability and avoid the crisis, as suggested by the literature on regulatory capture. State-actors, whether purposely or because of informational disadvantage, disre-garded the possibility of ineffective regulatory policies within the changing environment of excessive risk taking by financial market actors. The crisis then made this discrepancy clear, leading to institutional change.
between rules and implementation – compliance – might be one of the driving reasons for the formal inclusion of EMs into the institutions of international financial regulation as the inclusion of EMs might lead to increased compliance. This, however, is an implication of, not an explanation of, EMs influence, which is why this is not very useful in order to answer the research question. Therefore, we expect the inclusion of EM preferences to follow the layering approach. This would be the case across the major features of institu-tions: i) centralisation of tasks; ii) the range of topics covered, and iii) the flexibility of arrangements.
Another key aspect of influence is the addressees of recommendations - whether emerging economies limit their focus to other emerging and developing countries, or whether they address the system overall. Following the literature of incremental changes and layering, as well as taking the preferences of EMs outlined above, we argue that their focus of policy recommendations lies on other EMDEs.
Leading further away from my analysis is the possibility that the FSB turns out to be a less important institution than assumed. It could be that no decisions are made or that its standing is lower than expected. This would appear in the form of its members’ ideas and expectations about the role of the institution being more extensive than the actual FSB’s actions and role. While my hypotheses do not necessarily have to be denied in this case, it gives important insight in the type of forum in which emerging markets receive increased influence.
Deriving from the discussion we posit the following general hypothesis:
H1: The inclusion of emerging markets into the institutions of global financial governance is resulting in increased influence in decision-making, and is further increasing incremen-tally.
H2: Incumbents, AEs, will accommodate EMs in the new FSB but will keep their influ-ence as far as possible.
H3: Emerging markets’ included preferences in the FSB are limited to issues of concern to other emerging markets and developing economies.
In summary, we expect EMs’ preferences to be incrementally included into global financial governance decision-making and that these preferences will be focused on other EMs and DEs. The next chapter explains the way we test my hypotheses by extending on the design and methodology, and by introducing the sources used.
3 Design and Methodology
In order to answer our research question and to test our hypotheses, we have opted for a qualitative analysis: a single case study. As mentioned above, this thesis follows a process tracing approach. This is done by conducting a document analysis using two main sources: the FSB’s documents 3, and the permanent EMs’ press releases and/or speeches. These documents will serve the analysis in two ways: by establishing descriptive statistics and by finding causal links between EMs’ inclusion into the FSB and their influence (see Table 1).
Table 1: Documents and analytical focus
Documents Focus of Analysis
1) Descriptive analysis
Institutional bodies’ meeting - descriptive statistics on share of seats and chairs documents and press releases - number or times EMDEs are mentioned
2) Qualitative analysis
Institutional bodies’ and - contents and comparison to Plenary documents focusing on EMDEs
RCGs meetings - key policy issues agreed upon within RCGs - comparison to other RCGs and FSB’s decisions 3) National press releases - EMs’ preferences towards FSB and financial
regu-lation
- comparison to role and topics covered in the FSB
The descriptive analysis is based on descriptive statistics and serves as an underlying proxy to overall tendencies. This is related to one of the key features of institutions: the centralisation of tasks. In order to measure the centralisation of tasks, we analyse the share of seats and chairs each country group holds. This allows us to analyse the indirect policy influence EMs hold within the institution. More specifically, the higher the number of seats the countries hold the higher their ability to influence policy outputs in the form of increased staff member capacity. Additionally, holding a chair position allows the respective member to set and influence the agenda throughout the meetings. This is an important measurement of influence, as it serves as a “gate-keeping” position regarding
3 All the documents are found on the website of the FSB(FSB, 2017): http://www.fsb.org/. A list
the areas of discussion. Therefore, those holding chair positions are in an advantageous position to include their preferences into the discussion and the decision-making that follows. The higher the centralisation of tasks in the form of their share of seats and chairs on the EMs, the higher their influence (and vice versa regarding the AEs). In order to determine the share, the eighteen most important institutional bodies and working groups’ member lists have been coded (see Table 2)
Table 2: Institutional bodies for quantitative analysis
Type Name
Plenary - Plenary
RCG - RCG for the Americas (AM) - RCG for Asia (Asia)
- RCG for the Commonwealth of Independent States (CIS) - RCG for Europe (E)
- RCG for the Middle East and North Africa (MENA) - RCG for Sub-Saharan Africa (SSA)
(standing) - Steering Committee
Committee - Standing Committee on Assessment of Vulnerabilities (SCAV)
- Standing Committee on Supervisory and Regulatory Coop. (SCSRC) - Standing Committee on Standards and Implementation (SCSI) - Standing Committee on Budgets and Resources (SCBR)
(working) - Official Sector Steering Group (OSSG) Groups - OTC Derivatives Working Group
- Macroeconomic Assessment Group (MAG)
- Compensation Monitoring Contact Group (CMCG) - Working Group on UTI/UPI Governance
Task force - EMDEs Task Force/Forum
The most important body in the FSB is the Plenary. According to their Charter (Art. 9), it is the only decision-making body of the FSB, and the decisions are taken based on consensus. It also decides upon all matters of the institutional set-up such as mem-bership or the appointment of chairs. However, other institutional bodies do important preparatory and policy work.
Firstly, the RCGs’ main purpose is to bring together member and non-member author-ities to consult and inform the Plenary on issues regarding financial systems vulnerabilauthor-ities affecting the region or initiatives to promote financial stability (FSB 51/2010).
work of the FSB. The Steering Committee coordinates the Plenary meetings and carries out the directions of the institution (FSB Charter, Art. 12). The SCAV (Art. 14) monitors and assesses vulnerabilities of the financial system and addresses these as well as proposes solutions to the Plenary. The SCSRC (Art. 15) is responsible for ensuring coherent policy initiatives and managing coordination that might arise among supervisors and regulators, particularly when there are cross-sector implications involved. The SCSI (Art. 16) monitors the implementation of international financial standards and other agreed-upon commitments by the G20 and the FSB. Finally, the SCBR (Art. 17) generally manages the budget of the FSB.
Thirdly, the working groups have been established to assess the effects of policy reform implementation as well as to develop policy proposals to further develop regulations.
Finally, the EMDEs Task Force/Forum meets yearly to discuss possible unintended consequences from the implementation of the FSB’s reforms on EMDEs.
Overall, the centralisation of tasks across these institutional bodies gives us a proxy for the quantifiable influence EMs hold. The space they are assigned to within the Plenary is a starting position, yet the share of working positions they are assigned to lets us know how far their inclusion reaches. The less they are represented in the other bodies vis-à-vis AEs, the less their real influence and the less the AEs retreat from their power in order to accommodate the newcomers. Therefore, this measurement allows us to test our first hypothesis.
The descriptive part of the analysis is complemented by looking at the number of times EMDEs are directly addressed in the meetings. This serves us in two ways. First, being specifically addressed indicates that special preferences are being considered. The more often EMDEs are directly addressed, the more room is given to these members, which supports our first and second hypotheses. At the same time, looking at the specific topics discussed when they are addressed enables us to identify the topics of interest to the EMs.
The qualitative analysis then compares these identified emerging economies’ policy prefer-ences and makes a comparison to the decisions of the Board. These preferprefer-ences within the FSB are further identified by taking the core topics discussed within the RCGs, as they involve most EMDE countries, and the reports published by the ‘EMDEs Task Force’.
The consultation and implementation reports have been excluded from the analysis, as they enable us to trace the specific members’ implementation status but are too broad to allow for a clear identification of positions and changes regarding the particular country types. These core issues of interest to EMDEs will then be compared to the contents discussed within the FSB plenary and the actions or non-actions taken to resolve or in-clude these preferences. Overall, a total of 76 meeting documents from the plenary and RCGs meetings have been analysed to identify the range of topics discussed. Regarding the EMDEs-focused reports and task force, a total of seven reports have been analysed; a detailed list is found in the Appendix (see Table A1).
This is supported by analysing 120 press releases and speeches from the central banks and financial authorities representing the newly included permanent EMs in the FSB (see Table A3). The searches have been conducted in English, Spanish, and Portuguese. For the collection of the documents, search has been conducted for the terms: FSB, Financial Stability Board, Conselho de Estabilidade Financeira, Consejo de Estabilidad Financiera, or G20. From all hits, only those that were speeches or press releases have been included, as the country’s positions or preferences are more distinctly presented in them. Additionally, as the G20-related documents are more broadly related to financial regulation issues and the FSB, we have critically assessed their relevance to our research question and case, and the majority remained relevant to defining EMs’ preferences. It is important to note that some country remarks might be missing due to the language barriers regarding those EMs that have other official languages than the ones used, as not all documents are translated into English. The fewest documents available in the languages of focus were those from China and Russia. Nevertheless, the overall choice of documents, compiled from different sources, allows us to draw general patterns and increase the validity of our results. The qualitative analysis, therefore, allows us to test all our hypotheses.
4 Analysis and results: A historical overview and EMs’ influence
in the FSB
This chapter introduces the predecessor of the FSB, the FSF. It provides a very short historical overview in order to ensure a clear picture of its previous mandate and structure. This will allow us to recognise differences in the new body after the inclusion of the new members. Afterwards, we present and discuss the results of the analysis and provide links to our research question and hypotheses.
4.1 A historical overview
The FSF was established in 1999, along with the G20. Both were created by the G7 coun-tries after a series of financial crises, including the turmoil in East Asia. The FSF’s purpose was to bring together the representatives from G7 countries and from international in-stitutions focusing on international financial regulation such as IOSCO, the IMF and the WB. The membership was expanded to include further systemically significant financial centres, i.e. Australia, Hong Kong, the Netherlands, Singapore, and later Switzerland. The formation of the FSF served to improve the coordination between the international regulatory bodies and could be seen as an institutionalisation process of the international financial regulation regime (Porter, 2000). Its institutional setting was highly connected to the Bank of International Settlements (BIS), as its location and secretariat, as well as first chair, was situated within the BIS. The FSF’s mandate and membership was fully under control of the G7 (ibid.). Its main mandate was to promote financial stability through the exchange of information and international cooperation in financial super-vision and surveillance (see FSB, 2017). In 1999 three main working groups had been established, focusing on: i) highly leveraged institutions (hedge funds); ii) capital flows; and iii) offshore financial centres (Porter, 2000). The creation of working groups enabled fewer members to work on an issue and to develop concrete policy responses, which then are decided upon in the Plenary.
The most ambitious project was the FSF’s Compendium of Standards, which aimed to establish a functional and controlling set of international standards (Liberi, 2003). However, the creation of the FSF under the G7 influence indicated that the legitimising features of the international financial regulation regime were inadequate given external
developments (Porter, 2000). The above mentioned extension of membership was an at-tempt to improve legitimacy. Nevertheless, the exclusion of certain groups or countries remained, in order to ensure ‘homogeneous’ membership and policy ideas, which is con-tradictory to the aim to create a unified body of international financial regulation, and to a regulatory system that is dependent upon the willingness of members to implement the new standards (Liberi, 2003). This exclusion of emerging markets had long been resented by these countries (Helleiner, 2014).
Another shortcoming of the FSF was that it was a toothless institution lacking a founding charter, legal status, and formal power of any kind (Helleiner, 2014). This limited its ability to distinguish itself among other institutions of global financial governance, and to enforce the implementation of standards, particularly outside the range of its own member-authorities. For instance, the tool employed to enforce the implementation of the standards in regulating offshore financial centres was a ‘name-and-shame’ approach in which the FSF would publish a list dividing the countries into groups according to their quality of regulation, supervision, and cooperation. The FSF members signalled that they were willing to endorse sanctions on the countries in the bottom group of the list.
These shortcomings made the FSF lose importance in the financial governance regime. However, with the development of the GFC, the FSF regained momentum due to the US policymakers in particular (ibid.). In order to make the institution more effective, it was reformed and the FSB was established in 2009. The major differences from its predecessor are the inclusion of the largest emerging markets, the provision of a founding charter, and its legal footing. A similarity to the FSF is its focus on working in smaller settings, such as the committees and working groups.
4.2 The centralisation of tasks in the FSB
This is where we depart for our analysis. The largest emerging markets have formally been included into the FSB. The following section focuses on the first aspect of the analysis (see Table 1): the centralisation of tasks.
As listed above, the centralisation of tasks within the institution allows us to analyse the extent to which EMs are holding relevant positions outside of the Plenary. This section provides the findings on the centralisation of tasks within the FSB, the institutional
and AEs’ efforts to further accommodate the newcomers and/or other EMDEs, as well as the newly included EMs’ perspectives on their perceived role of influence within the institution. This allows us to give first answers to our research question.
4.2.1 Seats and chairs
Analysing the documents, a total of 553 seats are currently available across all listed institutional bodies and groups (see Table 2). Advanced economies hold 44% of the seats (244), while the permanently included EM economies occupy only around half of that amount, with 26% of the seats (142). The rest of the available seats are distributed to other institutions such as IOSCO or IASB, which are represented in 17% of all available spots (94).
This tendency is even more strongly visible when we only account for country seats and exclude institutional seats from the analysis. In that instance, over half of all the available seats are distributed to AEs (53%); the newly included EMs occupy 31% and other EMDEs 16% (see Figure 1). Other emerging and developing economies are almost only represented in the RCGs and account for 13% of the staff (73), with the exception of also being in the EMDEs Task Force (total of three seats). On average, however, each AE holds eight seats while each EM holds fourteen seats and other EMDEs hold ten. This means that the centralisation of tasks lies disproportionally in the hand of EMDEs.
Taking the RCGs out of the analysis, we get the following results. There are no clear difference in distribution, suggesting that the shares are, on aggregate level, equally distributed across all institutional bodies. Across the RCGs, however, there are extreme differences such as the fact that CIS, MENA and SSA have only EMDEs members, or that no EMDE countries are present in the group for Europe. Within the committees, EMs do even hold as many seats on average as AEs do. However, AEs are on average distributed more tasks outside the RCGs, as every AE holds fourteen seats but every EM holds ten and other EMDEs hold two. This is in regard to the working groups set up by the FSB, comprising both members and representatives from the private sector, in which the EMs are very seldom represented in comparison to the AEs.
Over the observed time frame, the institutional bodies have been expanded by eighteen more seats, of which almost all (72%) have been distributed to the EM economies, five to AEs but none to other (EM)DEs.
Figure 1: Share of seats
seats seats no inst. seats no RCGs seat increase
0 25 50 75 44 53 46 28 26 31 28 72 13 16 1 0 17 24 0 % AE EM other EMDE Institutions
A similar tendency is visible when looking at the centralisation of chairs. As mentioned above, the chairs serve as a possible tool to set the meetings’ agendas and therefore can be used as an indication of institutional influence. On the contrary to the general seats, we have cumulated all the chairs across all institutional terms. This not only allows for increasing the number of observations but also for showing stronger nuances in chair shares. Overall, a total of 53 chairs have been counted, and the distribution of chairs is more highly skewed than the share of seats (see Figure 2).
Figure 2: Share of chairs
chairs chairs no inst. chairs no RCGs
0 25 50 75 42 45 70 23 24 10 28 31 0 8 20 % AE EM other EMDE Institutions
(10), 28% from other EMDEs (15), and 8% from institutions (4). Combining both the permanently included EMs and the other EMDEs’ chairs, this means that more EMDEs occupy chair positions than AEs. This holds when we exclude the chairs taken by insti-tutions and focus only on those available to country members. This suggests that the distribution across the FSB is relatively even on an aggregate level. However, taking out the RCGs, the distribution shifts, resulting in 75% of the chairs being held by AEs, 20% by institutions and only 5% by EMs. The chairs distributed outside of the RCGs are on average unequally distributed to AEs, as each AE holds 1 chair while every EM holds 0.2 and other EMDEs hold none. In this case, we could not account for changes over time, due to a lack of data and most working groups having been in the first institutional term. Nevertheless, we see a tendency of EMDEs holding chairs in RCGs, in which the co-chairs are decided by permanent members for the first chair permanent members and by permanent members for the permanent second chair. As the majority of non-members are situated within the RCGs only, it is not surprising that the (unequal) chair distribution increases extensively. When looking at the chairs within the policy estab-lishing working groups and the Plenary, as well as the committees, the picture shows a centralisation of tasks distributed to benefit AEs. In this case, they hold agenda-setting and ‘gate-keeping’ positions.
Looking at the analysis of the centralisation of tasks, there are a number of underlying patterns. On the surface level, the FSB has made steps to equally distribute tasks across the different country groups. However, the tasks performed within most active and rele-vant bodies of the institution – in particular the working groups – are clearly more often assigned to AEs than EMs. This supports our second hypothesis: AEs are taking steps to include EMs, but are reluctant to give up their influence within institutions, in particular their important positions. The accommodation of EMs into the institution is occurring incrementally, as suggested by the seat share increase over time.
The next section provides further evidence that EMs are seeking even stronger par-ticipation after their formal inclusion through the FSB set-up. This suggests that our second hypothesis holds true: AEs are constraining the EMs’ influence in policy outputs but further accommodative steps are being taken.
4.2.2 Revision of the centralisation of tasks
The formal inclusion of EMs into the FSB working bodies has not been sufficient, as the centralisation of tasks remains highly AEs based. This becomes clear when we look into the newcomers’ perception of their influence in the institution. All countries except Brazil mention their own or other EMDEs’ role in relation to the international financial architecture.
Overall, 43 of the releases mention the country’s own representation. In order to obtain the actors’ exact positions on representation, the releases have been coded for three types of statement: whether it is a neutral remark about being a member, whether they perceive it as a great role (e.g. ‘assuming an influential role’), or whether increases in representation are to be made. In fact, the majority of the EMEs mention a need to further include their perspectives in the financial governance system (42%). The other opinions were mostly neutral (31%), with the minority very positive (12%).
The remarks addressing the need for improvement concentrate on the years 2009-2013. For instance, India (2009) states, “we have seen significant, but not yet adequate, reforms in the IMF and the World Bank that make them more able to assist the developing world. But much still needs to be done by these institutions to change their approach to and relationship with developing countries.” In 2012 and 2013, “Korea brought up the issue of improving representation within the FSB, leading to its publicization [sic!]. Progress was made on Korea’s request for a report that examines the FSB. Korea originally called for a review in Los Cabos and [they] see a greater role for EMEs” (Korea, 2012). Mexico supported Korea’s view, as “they agreed on the importance of creating mechanisms to increase the involvement of non-member countries and other sectors of the society in developing the FSB’s work agenda. These measures would expand the scope, effectiveness, and legitimacy of the FSB” (Mexico, 2012). Indonesia also called for ‘equal representation’ in the FSB in 2013.
Finally, in the same year, a timeline for this governance review was set for 2014 (Ko-rea, 2013). In 2014 a governance review report was published which called for greater inclusion of EMDEs within the FSB.
