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Terry Halliday and Bruce Carruthers outline a series of strategies that countries may use to resist the influence of powerful global institutions.
 

Scholars Terry Halliday and Bruce Carruthers examine the different levels of influence that international financial institutions (IFIs) had on countries affected by the Asian economic crisis. In the cases of Indonesia, South Korea and China, they study the ways in which each of these countries resisted powerful international institutions.

What are the conditions under which countries are most likely to avoid external influence?

There are three circumstances that increase a country’s ability to resist pressure from IFIs:

  1. When there is no crisis and so no desperate internal demand for capital,
  2. When there is a crisis, but capital can be found elsewhere, or a country is prepared to live with domestic economic damage while riding out the crisis,
  3. When there is a powerful, entrenched national leadership that remains in control domestically and can speak cohesively to outside institutions.

States use different strategies to minimize the influence of IFIs. There are several circumstances in which particular strategies of resistance are likely to be most effective.

Strategies for Avoiding Influence

Outright Refusal

Outright refusal to adopt recommendations may be possible under three conditions:

  1. If the leverage of IFIs is low,
  2. If a country can show general compliance with IFI demands or demonstrate a readiness to undertake major initiatives,
  3. If a country can persuade the IFIs that the proposed “solution” will create more problems if implemented in local circumstances.

In these cases, a country may obtain some amount of freedom by simply refusing to implement IFI recommendations.

Fragmenting Powerful External Coalitions

The power of IFIs can also be reduced when coalitions for change are fragmented. There are both internal (domestic) and external fragmentation strategies.

Internal Fragmentation Strategies

  • Sectors of the government may be selective in accepting assistance from several IFIs and sovereign creditor nations,
  • A government can fragment external influence by spreading those inputs over time and among different reform bodies within the country.

External Fragmentation

  • If the IFIs or intervening states are already divided, the government can keep these differences alive when problems arise on the path of reform,
  • A government can foster competition between IFIs for primacy in program leadership and recognition,
  • When pressures for reform are diminished or there is no crisis, concerted action of IFIs is not required.

Claiming Cultural Exceptionalism

  • Countries sometimes fend off IFI recommendations by maintaining that implementation would be contrary to cultural mores,
  • The effective use of this weapon increases when global institutions are already under attack for cultural insensitivity from other critics.

However, effectively playing of the "culture hand" on the domestic front requires a plausible basis. That is, the argument for cultural exceptionalism must rest on values and cultural norms that are either already in place or can be constructed.

Symbolic Compliance

The authors say that a country may offer signals of compliance to external constituencies, but proceed in different directions in practice.

There are several variants of symbolic compliance:

  • Enact the principle, but implement partially,
  • Implement laws perversely in order to maintain control,
  • Enact legislation, but qualify or subvert it through regulations (for example, requiring training in the native language),
  • Enact legislation, but not enforce it,
  • Exploit the gap between law-on-the-books and law-in-action.

However, a symbolic compliance strategy requires that external regulators have limited surveillance or enforcement capacities, and that internal practices be relatively invisible.

Substituting a Solution

A country may substitute a home-grown solution to solve an IFI-designated problem.

There are three requirements for this strategy to work:

  1. Substituting an alternative will be possible when a country has some level of freedom from IFI influence,
  2. National officials must be sophisticated enough to craft an alternative, and persuasive enough to convince IFIs that the alternative is basically equivalent to their proposals,
  3. Experts must be present within the country who can communicate as peers with experts from IFIs.

Procrastination

Procrastination is perhaps the least risky and most common tactic. A government can advise the IFIs that it accepts their conditions and recommendations, but then ’drag its feet’—doing as little as possible for as long as possible.

Stalling or slowing implementation is a strong tactic because it both avoids direct confrontation and has a surface plausibility. IFIs cannot always be sure whether the country is unwilling or unable to comply.

The effectiveness of delay may increase in two circumstances:

  1. When the IFIs appear reluctant or unable to penalize the country for non-compliance,
  2. When a country is very weak.

With regard to the last circumstance, a weak country, by definition, has less administrative and expert capacity to implement reform programs.

Segmenting Reforms

Another strategy for stalling is to break down a larger commitment into innumerable smaller steps.

This strategy can work when IFI pressures are not sufficient to force a comprehensive solution at the outset.

The relationship between crisis and resistance by segmentation is complex.

  • On the one hand, a crisis gives IFIs short-term leverage in which to obtain a major commitment from a government for comprehensive reform,
  • On the other hand, comprehensive reforms cannot be designed in a very short time period. In these circumstances, IFIs might settle for short term segmented reforms and a longer term comprehensive reform.

Constructing Exclusions and Escape Routes

Complying with IFI recommendations for reforms may threaten current power relations or forms of market regulation. Governments may build in "back-doors," exclusions and escape routes in order to preserve existing power relations. Three “escape routes” from reform include:

  • The government can carve out exceptions to the law so that politically troublesome or economically risky subjects are removed from the law,
  • The government may create the ability to mitigate the consequences of legal reform on an ad hoc basis (for instance creating a right of intervention by the government),
  • The government may be able to maintain channels of influence that lessen the force of reforms (for instance, a government may turn formal control of the bankruptcy process over to courts or a newly created agency, but retain substantial control of the process through its equity interest in banks).

Bottom Line

Halliday and Carruthers identify a number of strategies that "weak" countries may use to foil the intervention of powerful IFIs into their economies. The authors also identify conditions in which the different strategies may be more or less effective.

 
Data and Methods:

Data Source:

Based on interviews with actors involved in the development of international insolvency law.

Funding Sources:

American Bar Foundation.

 
Full Text Availability:
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Reference

Halliday, Terence C., and Bruce G. Carruthers. 2007. "Foiling the Hegemons: Limits to the Globalisation of Corporate Insolvency Regimes in Indonesia, Korea and China." Pp. 255-301 in Law and Globalization in Asia Since the Crisis, edited by Christoph Antons and Volkmar Gessner. Oxford: Hart Publishing.

 
 
 
 
 
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