Managing and transforming policy stigmas in international finance: Emerging markets and controlling capital inflows after the crisis

ABSTRACT

The past three decades have shown the increasing importance of the efforts of the international financial community to socialize emerging markets to accept norms of financial governance. Social sanctions often have been used to mark non-compliant states and their policies as deviant. Yet, we know little about how deviant states strategically manage such policy stigmas in international finance and how this management shapes the international normative order. Recent scholarship in international relations suggests that stigma management strategies tend to either reinforce or fracture the international normative order. This article, by contrast, contends that such strategies also have the potential to transform the international normative order so that it resembles more closely the preferences of the deviant. This argument is illustrated using evidence drawn from Brazil and South Korea's management of the policy stigma associated with controls on capital inflows.

KEYWORDS:

• Capital controls
• norms
• stigmas
• International Monetary Fund
• Brazil
• South Korea

ACKNOWLEDGMENTS

An earlier version of this paper was presented at the annual meeting of the International Studies Association, San Francisco, CA, 3–6 April 2013. The author is grateful for helpful comments on earlier drafts provided by Rebecca Adler-Nissen, Kevin Gallagher, Ilene Grabel, Eric Helleiner and Jonathan Kirshner. The author would like to acknowledge the research assistance of Natali Bulamacioglu.

Notes

1 For notable exceptions, see Tannenwald (2005) and Zarakol (2011).

2 See also Acharya (2004); Johnston (2008); Wiener (2008); Widmaier and Park (2012).

3 The search words included the country name (Brazil or South Korea) and tax, ADR, margin, derivatives, reserve, short, capital control, currency, forward, foreign, macroprudential, foreign exchange, withholding, liability, levy, and stability, non-deposit, leverage, maturity, ceiling, withholding, trading, limit.

4 The real peaked in late 2011 and has subsequently dropped since the intensification of the crisis in the Eurozone.

5 This result held even when the time-window for analysis was extended to cover a one-year lead and lag surrounding the policy announcement. Although the search did generate an extensive number of stories, including reactions from other international organizations, it is possible that this result stems from the search words inadequately capturing the comprehensive nature of the coverage. There may also be some selection bias in terms of what is reported, though it is not clear what, if any, mechanism would produce a nil return, particularly for a country with such a storied history with the IMF.

6 The embedded liberalism compromise provides one example of how pluralism can be accommodated within a shared normative framework, see Ruggie (1983).

Additional information

Notes on contributors

Jeffrey M. Chwieroth

Jeffrey M. Chwieroth is Reader in International Political Economy in the Department of International Relations at the London School of Economics and Political Science. He is the author of Capital Ideas: The IMF and the Rise of Financial Liberalization (Princeton University Press, 2010) and a number of articles on the political economy of international finance. His current research explores sovereign wealth funds and the political aftermaths of financial crises.