Governing Private Debt in the Global South

This project explores how the broader changes in the global economic system with the growing dominance of financial markets in political decision making have enabled the deepening of financial liberalization reforms, which has gradually given rise to private debt regimes in small open economies.

Private debt regimes refer to the governance of private borrowing, repayment and collection of loans via laws, rules, regulations and norms. The mechanisms include formal and informal practices that govern these exchanges.

At the same time, there is a great deal of variation in how private debt regimes operate across emerging capitalist economies. This not the least because global financial integration of national markets into the international circuits of capital varies. Some countries are integrated deeply, others more moderately and some are integrated in a more limited manner. This has implications on the credit policy choices of interest groups that support the ruling political party.

Given this backdrop, this project compares three small open economies across Latin America, the Middle East and Southeast Asia to explain and conceptualize emerging private debt regimes, with a focus on Argentina, Malaysia and Turkey. All three countries are classified in the upper middle income by the World Bank, occupy the lower echelons of global currency hierarchy and are considered semi-peripheral economies since they have limited projection of global influence in international markets. Since the onset of neoliberal policy reforms in the 1980s, residents in all three countries have experienced a decline in access to public goods provision due to an emphasis on fiscal discipline.

At the same time, there is a strong correlation between how these countries are influenced by the broader changes in the global economic system, such as the growing influence of financial markets, and the national outcomes with respect to how private debt is governed. For example, in Malaysia, which is classified as a highly integrated economy with global financial markets, private debt governance is highly formalized and regulated under a regime that encourages easier access to loans for households and firms. In contrast, the private debt regime in Argentina, where the integration of the national economy into global financial networks remains limited, is characterized by informal mechanisms where politicians do not prioritize growth in private loans for households and firms. Meanwhile Turkey, whose integration into global markets remains relatively moderate, has taken a more middling stance: there, private debt governance combines formal and informal practices where politicians encourage easier access to loans for firms and more moderate access for households.

Based on initial observations across these three cases, we expect the variation in the governance of private credit allocation and repayment terms to be shaped by two core dynamics. These include the policy preferences of the dominant social alliance with close ties to the incumbent and how these economies are integrated to global financial networks. To test the relationship between private debt regulation, political interest groups and the degree of financialization across a greater number of cases, the project will combine interview-based fieldwork with quantitative analysis.