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Towards Transparency in Finance and Governance


  • Tara Vishwanath

    (The World Bank)

  • Daniel Kaufmann

    (The World Bank)


The study of transparency is increasingly a more topical, broadly relevant, but also more under-researched enterprise. The Asian financial crisis has highlighted not only the welfare consequences of financial sector transparency, sparking a series of yet unresolved debates, but has also linked this relatively narrow problem to the broader context of transparency in governance. Its significance has broadened geographically as well as across different sectors. It has been observed that curtailment of transparency, often on scanty pretexts, is commonplace even in the highly developed countries. This suggests a broad and possibly radical reform agenda. Departing from the urgency of these observations, this paper reviews the existing literature on transparency in finance and governance, indicates remaining knowledge gaps, and offers some hypothesis on the mutual significance of the two issues. The first two sections of the paper outlines a conceptual framework for defining and measuring transparency that distinguishes among its desirable characteristics; access, timeliness, relevance, and quality. It also suggests methodologies that may produce tractable measures of transparency. Additionally, it places in context debates concerning transparency; its desirability, contingency, complexity and regulation. Reviewing critiques of objections against disclosure, the chapter advances a general preference for transparency, not only in the developing but also in the developed world. Nevertheless, it emphasizes the need to weigh the costs and benefits of more transparency in designing regulatory policy. In general, while consequences of information imperfections are well recognized, the solution is not simply a matter of more information. The third section treats the role of transparency in promoting greater financial stability, acknowledging exceptions to the general preference expressed earlier, in relation to financial stability. It treats as priority policy issues the following problems: developing institutional infrastructure, developing standards and accounting practices, improving incentives for disclosure and balancing countervailing regulations to minimize perverse incentives generated by safety net arrangements such as deposit insurance. An important suggestion is that since institutional development is gradual, relatively simple regulations such as limits on credit expansion, may be best tailored to developing countries. Implicit in this section is the notion that there are absolute limits to transparency, in particular for lack of adequate enforcement. The last section elaborates on the concomitant link between financial markets and governance, discussing select consequences of transparency for national-level and local governance, identifying some policy implications and suggesting further research issues. As illustrated by the case of Indonesia, it argues that financial reform may be predicated on broader public sector reforms. Again, because formal institutions take time to develop, it highlights three principles of reform to promote incentives for openness: harnessing private sector participation in service provision, promoting exit and contestability, and encouraging "voice" and public participation. These are now increasingly being integrated to new innovative data collection and analysis techniques, and to particular dissemination methods promoting collective action to improve governance and enhance transparency. The chapter concludes by outlining the difficulties of implementing greater participation and voice.

Suggested Citation

  • Tara Vishwanath & Daniel Kaufmann, 2003. "Towards Transparency in Finance and Governance," Finance 0308009, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0308009
    Note: Type of Document - Acrobat PDF; pages: 30

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    References listed on IDEAS

    1. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
    2. Eric S. Rosengren, 1998. "Will greater disclosure and transparency prevent the next banking crisis?," Working Papers 98-8, Federal Reserve Bank of Boston.
    3. Tito Cordella & Eduardo Levy Yeyati, 1998. "Public Disclosure and Bank Failures," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 110-131, March.
    4. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
    5. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, January.
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    Cited by:

    1. David M. Kemme, 2000. "Russian Financial Transition: The Development of Institutions and Markets for Growth," William Davidson Institute Working Papers Series 455, William Davidson Institute at the University of Michigan.

    More about this item


    financial liberalization; transparency; corruption; governance; banking crisis; asymmetric information; local investors; shocks; bad loans; emerging markets;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F30 - International Economics - - International Finance - - - General
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G00 - Financial Economics - - General - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H0 - Public Economics - - General

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