Emerging market bank rescues in an era of finance-led neoliberalism: A comparison of Mexico and Turkey

ABSTRACT

The international community and many financial experts have singled out the positive elements of how strong institutional reforms following Mexico's 1995 and Turkey's 2001 banking crisis have shielded their banking sectors today from the wider economic impact of the world financial crisis. By contrast, this article argues from a historical materialist analytical approach that the 1995 and 2001 bank rescues and reforms preserved, renewed, and intensified the structurally unequal social relations of power and class characteristic of finance-led neoliberal capitalism in forms institutionally specific to Mexican and Turkish society. The post-crisis reforms reinforced the dominance of banking and finance capital in Mexico and Turkey at the expense of popular classes and society in general, and it is this dynamic of power that explains the resilience of banks today.

KEYWORDS:

• Mexico
• Turkey
• banking
• rescue
• neoliberalism
• finance

ACKNOWLEDGEMENTS

This work was carried out with the aid of a grant from the International Development Research Centre, Ottawa, Canada. Information on the Centre is available on the web at www.idrc.ca. This work was also made possible by the post doctoral support of the SSHRC of Canada. I appreciate the insightful comments of the referees and I would like to extend my thanks to Gregory Albo, Susanne Soederberg, Alfredo Saad-Filho, and the SOAS Research on Money and Finance collective for their critical input on earlier drafts.

Notes

1 ‘World Faces Deepening Crisis, IMF Chief Warns’, IMF Survey Magazine, online, 21 January 2009. http://www.imf.org/external/pubs/ft/survey/so/2009/new012109a.htm

2 ‘IMF–OECD–WB Seminar on the Response to the Crisis and Exit Strategies – Joint Statement’, World Bank, online, 4 February 2009. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22069548~menuPK:34463~pagePK:34370~piPK:34424~theSitePK:4607,00.html

3 IMF 2009a: 26; ‘WB says Turkey has shock-proof financial system’, Hurriyet online, 14 October 2008. http://www.forbes.com/2008/10/08/wall-street-crisis-ent-fin-cx_kw_1008whartonlessons_2.html

4 ‘Learning from Nightmares’, Forbes.com, 10 October 2008. Akcaoglu, Emin (1998). Financial Innovation in Turkish Banking, Ankara: Capital Markets Board.

5 While the dynamics of bank rescue have received relatively little attention, the bank crises have been widely debated (see Akyüz and Boratav, 2003; Cizre and Yeldan, 2005; Önis, 2006; Garrido, 2005; Guillén Romo, 2005; Stallings, 2006).

6 While beyond the scope of this article, some have narrowed the Mexican bank privatization debacle down to whether the prices paid were either high or too high (for example, Haber, 2005). Others have then reproduced the ‘high versus too high’ debate as an isolated fact (Avalos and Trillo, 2006: 17; Stallings, 2006: 187). Where circumstances are complex, too direct a line is drawn from the price paid to the 1995 banking crisis.

7 A high level SHCP director in the Banking and Saving Unit affirmed this official interpretation (Interview, 13 February 2008, Mexico City).

8 In 2002 figures, Korea's 1997 crisis cost more than 20 per cent of GDP, Malaysia's 1997 crisis 5 per cent, and Thailand's 1997 meltdown 43 per cent (OECD, 2002: 91). President Barack Obama's US stimulus package, valued at around 5.7 per cent of US GDP, seems almost frugal in relative terms.

9 Interview, 27 August 2007, Ankara.

10 Interview, Senior Manager, Halk Bank, 24 August 2007, Istanbul.

11 Interview, Bank and Saving Unit, 13 February 2008.

12 Griffith-Jones et al. (2004) discuss the problems of implementing Basel II for developing countries.

13 With the 2008–09 financial crisis bringing an end to Turkish economic growth, AKP President Recep Tayyip Erdoğan has questioned the principle of TCMB independence because it ties the hands of government action.

14 For debates on foreign control, see Avalos and Trillo (2006); Beck and Martinez Peria (2008); Guillén Romo (2005); and Girón (2005).

15 Many others also rightly point to how in emerging markets banks have turned to acquiring high-yield state debt securities, collecting high transaction commissions, driving up user fees for payment services, pushing high interest consumer debt, and minimizing loans to productive activities and SMEs to augment profitability (Gültekin-Karakas, 2008; Guillén Romo, 2005; Toporowski, 2007; Stallings, 2006; Lapavitsas and Dos Santos, 2008).

16 Turkish profits are quite robust compared to OECD countries during the 1980s, for example, 1.38 per cent in Spain, 1.14 in Italy, and 0.5 in Germany (Akcaoğlu, 1998: 92).

17 Comparatively, the 2003 ROA for China's largely state-owned banking system was 0.1 per cent and Korea's largely mixed ownership system's ROA averaged 0.5 per cent (Stallings, 2006: 69–71).

18 ‘Require la Banca Suficiente Capitalización: Banamex’, El Financiero, 13 June 1990, p. 3.

19 www.londonsummit.gov.uk

20 ‘The Crisis and the Policy Response’, Stamp Lecture at the London School of Economics, online, 13 January 2009.