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Capital Market Development in Southeast Asia. From Crisis Recovery to Islamic Finance

Over the last decade, the financial systems of Southeast Asia have undergone a significant transformation with capital market finance gaining prominence over bank finance. States have played an important role in developing the domestic bond markets of the region. Their efforts occurred in direct response to the vulnerabilities generated by the double mismatch of short-term, dollar-denominated borrowing for long-term, local currency investments that had become apparent during the Asian financial crisis of 1997-8. Domestic bond market development was seen as a way to mitigate the risks associated with increased international capital mobility and as a means to channel savings towards economic growth in the region. Similar characteristics have been attributed to Islamic finance which has made considerable inroads into the Malaysian financial system and – to a somewhat lesser extent – that of Indonesia and Singapore. However, taken together, these developments pose an important question: How do states engage new financial ideas and practices? This project seeks to explore how states in Southeast Asia - more specifically Malaysia, Singapore and Indonesia - are developing the necessary capacity to deal with financial change and the role they play in promulgating financial market knowledge. Book manuscript in preparation.

The Sukuk Project: Imitation or Contestation of Conventional Finance?

At a time when the conventional, interest-based financial system continues to suffer from the reverberations of the global financial crisis (GFC), Islamic finance is rapidly expanding, achieving annual growth rates of around 15 per cent. It is now widely regarded as a development ‘to watch’ among both policymakers and market practitioners. However, its increasing salience has led to heated debates in both academic and practitioner circles on the distinctiveness of Islamic finance. There are two prominent and opposing views: one argues that Islamic financial instruments largely emulate conventional ones while the other argues that Islamic finance offers a substantive alternative to conventional finance. This project is a comparative study investigating points of convergence and divergence between Islamic finance and conventional finance in Malaysia. In so doing, we adopt a tripartite methodological approach by disaggregating the development cycle of financial instruments into the stages of (1) conceptual design; (2) legal structure; and (3) economic impact. Pilot study funded by a Melbourne School of Government Incubator Grant. With Jikon Lai and Kerstin Steiner.