¹ Among the most recent studies are Cukierman, Alex, Webb, Steven B., and Neyapti, Bilin, “Measuring the Independence of Central Banks and Its Effect on Policy Outcomes,” World Bank Economic Review 6, no. 3 (1992CrossRefGoogle Scholar); Cukierman, Alex, Central Bank Strategy, Credibility, and Independence: Theory and Evidence (Cambridge:MIT Press, 1992Google Scholar); Alesina, Alberto and Summers, Lawrence H., “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence,” Journal of Money and Banking 25 (May 1993CrossRefGoogle Scholar); and Goodman, John B., Monetary Sovereignty: The Politics of Central Banking in Western Europe (Ithaca, N.Y.:Cornell University Press, 1992Google Scholar); Posen, Adam, “Why Central Bank Independence Does Not Cause Low Inflation,” in O'Brien, R., ed., Finance and the International Economy (Oxford:Oxford University Press, 1993Google Scholar).

² For an introduction to positive political economy, see Alt, James E. and Shepsle, Kenneth A., Perspectives on Positive Political Economy (Cambridge:Cambridge University Press, 1990CrossRefGoogle Scholar).

³ Grilli, Vittorio, Masciandaro, Donato, and Tabellini, Guido, “Political and Monetary Institutions and Public Financial Policies in the Industrial Countries,” Economic Policy, no. 13 (1991), 344Google Scholar.

⁴ Research on the connection between growth and central bank characteristics, using a measure combining central bank independence and informal authority, finds that while there is no evidence of a positive correlation for advanced industrial countries, data do suggest one for developing countries. See Alex Cukierman et al., “Central Bank Independence, Growth, Investment and Real Rates,” Carnegie-Rochester Conference on Public Policy 39 (Autumn 1993).

⁵ Autonomy may not facilitate capacity. Peter Evans, “The State as Problem and Solution: Predation, Embedded Autonomy, and Structural Change,” in Haggard, Stephan and Kaufman, Robert R., eds., The Politics of Economic Adjustment (Princeton:Princeton University Press, 1992Google Scholar).

⁶ Greider, William, Secrets of the Temple (New York:Simon and Schuster, 1987Google Scholar).

⁷ Data on governor turnover for fifty developing countries has been collected by Cukierman, Webb, and Neyapti (fn. 1).

⁸ The most public source of disagreement was over the role of military personnel on the boards of commercial banks. In one instance Puey tried to encourage two generals on the board of the failing Thai Development Bank to intervene; they refused and the bank became insolvent. Chagrined, the generals reportedly apologized to Puey for their obstinance. Interview with Prachitr Yossundara, Bangkok, July 19, 1991.

⁹ Yoo Taek Kim, the second governor of the Bank of Korea, publicly repudiated government efforts to change the bank charter and was forced to resign. Wi Hwan Bae, the fourth governor, in office from June 1960 to September 1960, refused to channel bank resources into j the military party's campaign fund. Chang Soo Yoo, the sixth governor, in office from May 1961 until May 1962, refused a government financing request and was forced to resign. Byung Do Min, the seventh governor, in office from May 1962 until June 1963, resigned decrying government efforts to move commercial regulatory authority from the central bank to the Ministry of Finance. Author interviews with Chung Soo Yoo, October 25, 1991, and Wi Hwan Bae, October 30, 1991, Seoul. Details are also found in Suk Ha Shin, “Chunganguenhaengui Dongnipsungae Kwanhan Yeonkou” (A study of the independence of the Bank of Korea) (M.A. thesis, Seoul National University, 1991); Kim, Jung Ryun, Thirty Years' History of Economic Policies (Seoul, 1991Google Scholar).

¹⁰ Lai, Deepak and Maxfield, Sylvia, “The Political Economy of Stabilization,” in Bates, Robert and Krueger, Anne, eds., The Political Economy of Structural Adjustment (London:Basil Blackwell, 1993Google Scholar).

¹¹ One frustrating example is Clark's effort to explain central bank independence in developing countries in the context of “nested games.” He argues that in a game between a stability-oriented central bank and an expansion-preferring fiscal authority, the central bank will be most powerful when it has the first move. There is no discussion, however, of what shapes the rules regarding the sequence of play. See William Roberts Clark, “Institutional Choice as Nested Games: Central Bank Independence in Developing Countries” (Paper delivered at the annual meeting of the American Political Science Association, Chicago, September 3—6, 1992).

¹² Woolley, John T., “Central Banks and Inflation,” in Lindberg, Leon N. and Maier, Charles S., eds., The Politics of Inflation and Economic Stagnation (Washington, D.C.:Brookings Institution, 1985), 319Google Scholar.

¹³ Davies, S. Gethyn, ed., Central Banking in South and East Asia (Hong Kong:Hong Kong University Press, 1960Google Scholar).

¹⁴ Pointing to the nature of private financial markets and government financial needs echoes a version of “domestic structures” political economy arguments that attribute multifaceted explanatory power to the structure of financial markets. Hall, for example, argues that the likelihood of political leaders adopting Keynesian economic ideas and policies is shaped by “the kind of financial instruments that each state developed to fund its debt, the regulatory regime imposed on the banking sector and the general character of the capital markets.” See Hall, Peter A., The Political Power of Economic Ideas (Princeton:Princeton University Press, 1989), 380Google Scholar.

¹⁵ ”Once a financial system is created,” Henning writes, “the capacity for rapid change is severely limited. The developmental state is the prisoner, in all but the long run, of its past decisions on financial structures.” See C. Randall Henning, “Finance, Industry and External Monetary Policy” (Mimeo, International Institute for Economics, September 1991), 55.

¹⁶ Cukierman (fn. 1), 450. Under these circumstances the government will delegate authority to the central bank only to the extent it perceives the need for credibility in the eyes of potential private creditors who in turn seek central bank authority as a signal of government intentions. See Sylvia Maxfield, “International Sources of Central Bank Convergence in the 1990s” (Paper prepared for the meeting of the Latin American Studies Association, Atlanta, March 10-12, 1994).

¹⁷ Cukierman (fn. 1), 449-50.

¹⁸ Mill, John Stuart, A System of Logic: Ratiocinative and Inductive (1893; Toronto:University of Toronto Press, 1967Google Scholar); Przeworski, Adam and Teune, Henry, The Logic of Comparative Social Inquiry (New York:Wiley-Interscience, 1970Google Scholar); Ragin, Charles C., The Comparative Method: Moving beyond Qualitative and Quantitative Strategies (Berkeley:University of California Press, 1987Google Scholar).

¹⁹ These four cases raise questions, tangential to this article, about the relationship between financial market intervention and growth. See Haggard, Stephan, Lee, Chung, and Maxfield, Sylvia, eds., The Politics of Finance in Developing Countries (Ithaca, N.Y.:Cornell University Press, 1993Google Scholar).

²⁰ These were branches of the British Hongkong and Shanghai Banking Corporation, the British Chartered Bank of India, and the French Banque de PIndochine. See Brown, Ian, The Elite and the Economy in Siam c. 1880-1920 (Oxford:Oxford University Press, 1988), 124Google Scholar–25; King, Frank H., Eastern Banking: Essays in the History of the Hongkong and Shanghai Banking Corporation (London:Athlone Press, 1983Google Scholar).

²¹ The name was chosen to mislead the British into thinking it was a library.

²² Viwat, Prince, “The Bank of Thailand,” in Bank of Thailand, Prince Viwat Cremation Volume (Bangkok:Bank of Thailand, 1961), 68Google Scholar.

²³ Rozental, Alek A., Finance and Development in Thailand (New York:Praeger, 1970), 189Google Scholar.

²⁴ Ibid., 190.

²⁵ The 1950s and 1960s, when Puey was governor of the Bank of Thailand, was a period of especially close interaction between central and private bankers. The 1962 revision of the commercial banking legislation, for example, was designed through extensive consultation between the Bank of Thailand and private bankers. Interviews with Boonchu Rojanastien, Bangkok, July 20, 1991, Prachitr Yossundara, Bangkok, July 19, 1990, and Chavalit Thanachanan, Bangkok, July 16,1991; see also Maxfield, Sylvia and Siroros, Patcharee, “The Politics of Central Banking in Thailand” (Paper delivered at the annual meeting of the Association for Asian Studies, Washington, D.C., April 2–5, 1992Google Scholar).

²⁶ On pre-1910 Mexican banking, see 100 Anos de Banca en Mexico (Mexico City:Banco de Londres y MexicoGoogle Scholar, S.A., n.d.); Ricardo Torres Gaitan, Politico Monetaria Mexicana (Mexico City: n.p., 1944); Lopez, Ernesto Lobato, El Credito en Mexico (Mexico City:Fondo de Cultura Económica, 1945Google Scholar).

²⁷ On financial policy debates in the aftermath of the 1917 armed phase of the Mexican revolution, see Hilda Sanchez Martinez, “La politica bancaria de los primeros gobiernos constitu-cionalistas, antecendentes para la fundación del Banco de Mexico,” in Ludlow, Leonor and Marichal, Carlos, eds., Banca y poder en Mexico (1800–1925) (Mexico City:Editorial Grijalbo, 1986Google Scholar); and Ramirez, Mario, “Y cuando Carranza incautó la banca,” in Ramirez, Mario et al., Banca y crisis del sistema mexicano (Mexico City:Editorial Pueblo Nuevo, 1983Google Scholar).

²⁸ One indication of public sector regard for private financiers is that the highest-level public sector financial officials invariably attend the annual meetings of the Mexican Bankers Association. They do not attend other business association meetings with any regularity.

²⁹ Skully, Michael T., Financial Institutions and Markets in Southeast Asia (Hong Kong:MacMillan, 1984), 311Google Scholar–17; Rozental (fn. 23), 103–65; Marzouk, G. A., Economic Development and Policies: Case Study of Thailand (Rotterdam:Rotterdam University Press, 1972), 380Google Scholar–81.

³⁰ Rozental (fn. 23), chap. 7.

³¹ The stereotype of Mexican industry generalizes somewhat unfairly from the situation of Valle de Mexico enterprises that did enjoy subsidized credit during the 1950s and 1960s. Nonetheless credit from the national development bank, Nafinsa, the most notorious source of subsidized credit, went increasingly to public sector enterprises. Government entities themselves were the biggest recipients of low-cost credit, when its distribution was at its peak in the 1970s. Furthermore, comparison of stated government directives for subsidized credit allocation against actual recipients for 1950–80 reveals that manufacturing benefited far less than is commonly believed. For more details, see Maxfield, Sylvia, Governing Capital: International Finance and Mexican Politics (Ithaca, N.Y.:Cornell University Press, 1990), 66–68Google Scholar; and idem, “The Politics of Mexican Finance,” in Haggard, Lee, and Maxfield (fn. 19).

³² Derossi, Flavia, The Mexican Entrepreneur (Paris:OECD, 1971), 113Google Scholar; Navarette, R. Alfredo, “El financiamiento del desarollo económico,” in Mexico: cincuenta anos de revolución (Mexico City:Fondo de Cultura Económica, 1960), 527Google Scholar; Goldsmith, Raymond, The Financial Development of Mexico (Paris:OECD, 1966) 46Google Scholar; Brothers, Dwight S. and Solis, Leopoldo, Mexican Financial Development (Austin:University of Texas Press, 1966), 101Google Scholar; Thompson, John K., Financial Markets and Economic Development: The Experience of Mexico (Greenwich, Conn.:JAI Press, 1979), 150Google Scholar.

³³ Woo, Jung-en, Race to the Swift: State and Finance in Korean Industrialization (New York:Columbia University Press, 1991), 25Google Scholar.

³⁴ The Bank of Chosen's role as imperial bank apparently knew no limits. Woo notes that it established twenty offices in Manchuria and one in New York to raise funds for the Japanese campaign. It was fiscal agent for the Kwantung army and engaged in drug trafficking and smuggling in efforts to undermine Chinese authority. Woo (fn. 33). See also Cole, David C. and Park, Yung Chul, Financial Development in Korea, 1945–1978 (Cambridge:Council on East Asian Studies, Harvard University, 1983), 46CrossRefGoogle Scholar.

³⁵ Interview with Sang Woo Nam, Seoul, August 21, 1990.

³⁶ Bloomfield, Arthur I., Banking Reform in South Korea (New York:Federal Reserve Bank of New York, 1951Google Scholar); idem, “Report and Recommendations on Banking in South Korea,” Monthly Statistical Review, Bank of Korea, Research Department (June 1952Google Scholar).

³⁷ Ribeiro, Benedito and Mazzei Guimaraes, Mario, History of Brazilian Banking and Financial Development (Rio de Janeiro:Pro-Service—Editora, 1967), 41Google Scholar.

³⁸ This government initiative followed a ten-year period during which a handful of private banks were established. These banks issued notes that the public widely accepted, leading to depreciation of government notes. As a result, “when the government needed credit, it was unable to discount its securities in the private banking system.” Ribeiro and Mazzei Guimaraes (fn. 37), 78.

³⁹ Ribeiro and Mazzei Guimaraes (fn. 37); Manuel Pelaez, Carlos and Suzigan, Wilson, Historia monetaria do brasil: analise da politica comportamento e instituçōes monetarias (Rio de Janeiro:IPEA/INPES, 1976Google Scholar); Historia das instituçōes financeiras (São Paulo:Estrella Alfa Editora, 1972Google Scholar); Goldsmith, Raymond W., Brasil 1850–1984: Desenvolvimento financeiro sob um seculo de inflacão (São Paulo:Editora Harper & Row de Brasil, 1986Google Scholar).

⁴⁰ Topik, Steven, The Political Economy of the Brazilian State (Austin:University of Texas Press, 1987), 40Google Scholar.

⁴¹ The first programs were temporary: 1906 Taubate Agreement and others in 1917 and 1921. A permanent program was implemented in 1924. The programs were paid for by the federal government except during the period from 1924 until 1930, when they were funded by the state. See Holloway, Thomas, Immigrants on the Land: Coffee and Society in São Paulo (Chapel Hill:University of North Carolina Press, 1980Google Scholar); Delfmin Netto, Antonio, O problema do cafe (Rio de Janeiro:Ed. Fundacao Getulio Vargas, 1979Google Scholar).

⁴² Topik (fn. 40), 47.

⁴³ Fritsch, Winston, “The Montagu Financial Mission to Brazil and the Federal Economic Policy Changes of 1924,” Brazilian Economic Studies 9 (1985Google Scholar).

⁴⁴ Some private bankers supported Niemeyer's report; paulista businessmen opposed it and succeeded in getting the report shelved, as they had the 1923 proposal. Otto E. Niemeyer, “Report Submitted to the Brazilian Government,” July 4, 1931.

⁴⁵ Neuhaus, Paulo, Historia monetaria do Brasil, 1900–1945 (Rio de Janeiro:IBMEC, 1975), 144Google Scholar.

⁴⁶ Armijo, Leslie, “Public Policymaking in a Semi-Autonomous State: Brazilian Financial Modernization, 1950–1987” (Manuscript, 1989), 157Google Scholar.

⁴⁷ Minella, Ary Cesar, Banqueiros: Organização e poder politico no Brasil (Rio de Janeiro:Espaço e Tempo/ANPOCS, 1988Google Scholar).

⁴⁸ One reason attributed to the Rhee government was the fear of private monopolization. See Bloomfield (fn. 37, 1952), 63.

⁴⁹ Initially single-bidder purchases were forbidden to prevent decisive control by any single business group, but this policy was relaxed in 1957 and controlling interests were sold to various incipient chaebol, or conglomerates.

⁵⁰ Interview with Byung Hyun Shin, Seoul, August 22, 1990.

⁵¹ Cole and Park (fn. 34), 65, 255–56.

⁵² Woo (fn. 33), 11–12, 159.

⁵³ For example, ceilings set on Bank of Korea loans to the commercial banks in 1959 were lifted several times in response to strong complaints from commercial banks. In the fall of 1962 the Bank of Korea raised commercial bank reserve requirements; but when fears of rising inflation led to large deposit withdrawals, the banks pressed for and were granted a reduction. Kuk Kim, Byong, Central Banking Experiment in a Developing Economy (Seoul:Korean Research Center, 1965), 175Google Scholar, 220.

⁵⁴ Kim (fn. 53).

⁵⁵ Lees, Francis A. et al., Banking and Financial Deepening in Brazil (London:MacMillan, 1990), 141CrossRefGoogle Scholar.

⁵⁶ In the imperial era and during the First Republic private bank assets were mostly government bills and bonds rather than private sector loans. In contrast to Thailand and Mexico, where the historic asset and liability structures of private banks revealed a relatively strong tie to the rest of the private sector, the Brazilian state dominated private bank activity beginning in the imperial era.

⁵⁷ Neuhaus (fn. 45), 121–24.

⁵⁸ Furthermore, the government tacitly permitted the banks to operate on the edge of law and safety in the free portion of the market, earning high profits and taking great risks knowing the state would bail them out if necessary. Armijo (fn. 46), 270.

⁵⁹ Ibid., 220.

⁶⁰ Cole and Park (fn. 34), 30–33.

⁶¹ Lim, Youngil, Government Policy and Private Enterprise: Korean Experience in Industrialization (Berkeley:Institute of East Asian Studies, University of California Press, 1981), 39Google Scholar.

⁶² Sung Tae Ro, “Korean Financial Markets and Targets of Monetary Policy” (Ph.D. diss., Harvard University, 1984), 61. Comparable data for Japan, 1954–67, shows 68% external financing and for the U.S., 1947–63, 35 percent external financing. Lim (fn. 61), 39.

⁶³ Stephan Haggard and Chung-in Moon, “Institutions and Economic Policy: Theory and a Korean Case Study,” World Politics 42 (January 1990); Eun Mee Kim, “From Dominance to Symbiosis: State and Chaebol in Korea,” Pacific Focus 3, no. 2 (1988); Cole and Park (fn. 34), 158–79; Jones, Leroy P. and Sakong, II, Government, Business and Entrepreneurship in Economic Development (Cambridge:Harvard University Press, 1970), 107Google Scholar–9; Lim (fn. 61), 26. The government did occasionally discipline industrialists by letting some fail, for example, in Yulsan in the late 1970s and Kukje in the early 1980s. For more on this, see Amsden, Alice H., Asia's Next Giant: South Korea and Late Industrialization (Oxford:Oxford University Press, 1989Google Scholar).

⁶⁴ Economic Commission on America, Latin, The Process of Industrial Development in Latin America (New York:United Nations, 1966), 188Google Scholar.

⁶⁵ Barker, Wendy, “Banking and Industry in Contemporary Brazil” (Ph.D. diss., Yale University, 1990), 73Google Scholar.

⁶⁶ Ibid. By the mid-1980s external financing may have dropped. Seventy-two percent of Barker's respondents said they relied on internal resources for both short- and long-term financing.

⁶⁷ Ragin (fn. 18), 41.

⁶⁸ Fearon, James D., “Counterfactuals and Hypothesis Testing in Political Science,” World Politics 43 (January 1991CrossRefGoogle Scholar).

⁶⁹ For an overview of the different variants of new institutionalism, see Powell, Walter W. and DiMaggio, Paul J., Introduction, in Powell, and DiMaggio, , eds., The New Institutionalism in Organizational Analysis (Chicago:University of Chicago Press, 1991Google Scholar); and Thelen, Kathleen and Steinmo, Sven, “Historical Institutionalism and Comparative Politics,” in Steinmo, , Thelen, , and Longstreth, , eds., Structuring Politics (Cambridge:Cambridge University Press, 1992Google Scholar).

⁷⁰ Lohmann, Susanne, “Federalism and Central Bank Autonomy” (Mimeo, Graduate School of Business, Stanford University, December 1992Google Scholar).

⁷¹ Mathew Shugart, in conversation.

⁷² Political business cycle models attribute different mixes of partisan and opportunistic office-seeking motives to politicians. Extreme examples are (for opportunistic motives) Nordhaus, William, “The Political Business Cycle,” Review of Economic Studies 42 (April 1975CrossRefGoogle Scholar); and (for partisan motives) Hibbs, Douglas A., “Political Parties and Macroeconomic Policy,” American Political Science Review 71, no. 4 (1971Google Scholar).

⁷³ Goodman, John B., “The Politics of Central Bank Independence,” Comparative Politics 23 (April 1991CrossRefGoogle Scholar).

⁷⁴ Friedman, Milton, “Monetary Policy: Theory and Practice,” journal of Money, Credit and Banking 14 (February 1982Google Scholar); Goodman, John B., “Monetary Politics in France, Italy and Germany, 1973–1985,” in Guerrieri, P. and Padoan, P. C., eds., The Politics of European Integration (New York:Harvester Wheatsheaf, 1989Google Scholar).

⁷⁵ Clark, William Roberts, “The Sources of Central Bank Independence in Developing Countries” (Paper delivered at the annual meeting of the American Political Science Association, Washington, D.C., September 3–6, 1993Google Scholar).

⁷⁶ Alex Cukierman and Steven Webb, “Political Influence on the Central Bank-International Evidence” (Revised version of a paper presented at the annual meeting of the American Economics Association, Anaheim, Calif., January 1993).

⁷⁷ Haas, Peter M., “Introduction: Epistemic Communities and International Policy Coordination,” International Organization 46 (Winter 1992CrossRefGoogle Scholar), 3.

⁷⁸ Lohmann (fn.70).

⁷⁹ Average annual government deficit relative to government revenue was -.95 in the 1890s; -.15 in the 1900s; -.32 in the 1910s; -1.47 in the 1920s; and -.78 in the 1930s. Compiled from Mitchell, B. R., International Historical Statistics: The Americas and Australasia (Detroit:Gale Research Company, 1983CrossRefGoogle Scholar).

⁸⁰ Arnaudo, A., Cincuenta anōs de politico financiera Argentina (1934–1983) (Buenos Aires:El Ateneo, 1987), 23–31Google Scholar; de la, Banco CentralArgentina, Republica, La Creación del Banco Central y la experiencía monetaria Argentina entre los anōs 1935–1943 (Buenos Aires: Banco Central de la Republica Argentina, 1972), 847Google Scholar, 885, 992–1000; Estevez, A., La literatura sobre el Banco Central de la Republica Argentina 1935–1946 (Buenos Aires:Ministerio de Educación, Universidad de Buenos Aires, 1954), 683Google Scholar–84.

⁸¹ Cukierman et al. (fn. 4), 7.