Basel II is yet another attempt by the global financial community to remedy the woes associated with unhindered financial liberalization. While developing countries will come under pressure from different quarters for implementing Basel II, the drive towards implementation is in complete disregard of the serious issues that have been raised regarding its adverse implications. Apart from an increase in the cost of financing development implied by Basel II for a variety of reasons, ironically, new forms of regulatory biases and resultant systemic instabilities may be generated by its proposed implementation. This will worsen the existing conflicts between the objectives of financial stability and economic development facing developing countries, and has adverse implications for their development prospects.

January 18, 2007.