In making the case for the Financial Services Agreement (FSA), the International Chamber of Commerce (ICC) and other business groups argued that the liberalization and deregulation of financial services would benefit developing countries: it would enable foreign firms to introduce new skills and products to developing countries; facilitate investment; ‘enable reliable and efficient settlement of payments’; give easier access to more diverse sources of capital; and through competition promote efficiency and lower costs for loans and better interest rates.
Developing countries were not convinced and opposed the agreement but were eventually pressured into accepting it. The IMF had already been enforcing many similar requirements for opening access to foreign financial services through its loan conditions to poorer countries and so the resistance to their introduction at the WTO was less strenuous than might otherwise have been expected. Nevertheless South Korea and Malaysia managed to hold out against the pressure whilst other countries caved in during final hour, early morning negotiations.
The US and Europe, which had most to gain from the agreement, clearly used the financial crisis in Asia as a bargaining chip to persuade many Asian countries to agree. Asian nations were told that the agreement was necessary before foreign investors would invest in their countries again. Some even blamed the financial crisis on the lack of liberalization in the past. Andrew Buxton, chair of Barclays Bank and President of the British Bankers Association, argued that ‘Much of the crisis in the financial sector in Asia in 1997 was due to poor supervision of financial institutions, coupled with a lack of inward investment through restrictions on the liberalisation process.’
The promise of more foreign investment persuaded many countries. The Egyptian Ambassador, Mounir Zahran pointed out that the deal was rather one-sided as it would allow US and European financial companies to compete in the South whilst financial companies from the South were unlikely to be able to compete in the North: ‘But we all need trade finance and foreign investment, and have agreed to this in the hope that this will help bring in finance and foreign investments.’
However, as Chakravarthi Raghavan wrote in Third World Economics, the reason for high levels of foreign investment before the crisis was the ‘high growth rates and higher returns’ in Asian countries than in the investors’ home countries and, even if there was better access for financial services, the attractive growth rates and returns were no longer there.