Local bond markets, financial development and the new politics of debt in Malaysia

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Abstract

This doctoral thesis investigates the transition from a bank-based to a capital marketbased
financial system that has taken place in Malaysia over the last two decades. In so
doing, it more closely traces Malaysian financial policymaking processes, specifically
efforts to develop domestic bond markets since the mid-1980s. Based on recent insights
from the constructivist political economy literature and drawing on a wide range of
Malaysian policy documents as well as elite interviews, it argues that the shift which has
taken place can only be understood against the backdrop of the changing ideational
underpinnings of financial policymaking. Neoliberal economic reforms that were
implemented in the 1980s served as a powerful rationale for pro-capital market reforms.
However, this thesis detects a qualitative change within the market paradigm after the
Asian financial crisis of 1997-8, away from simply rolling out markets towards institutionbuilding.
This led to increased efforts to develop local bond markets.
Furthermore, this thesis suggests that the expansion of bond finance in Malaysia has
entailed larger socio-economic changes which can be subsumed under the notion of
financialisation. A number of examples are presented in the thesis. More specifically, the
increasing salience of bond finance has given rise to a new politics of debt, as debt has
become successively privatised and individualised. However, progressive financial
disintermediation in Malaysia has also changed the underlying dynamics of Malaysian
capitalism more generally in favour of a greater market orientation. Contrary to existing
accounts on the role of bond finance, it is argued that policy autonomy is not so much
directly constrained by market forces, as by the pervasive hold that specific forms of
(financial) market knowledge have taken in the state apparatus. However, the rise of
Islamic finance in Malaysia will be discussed to illustrate that a small developing country
can retain some epistemic autonomy.

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