Volume 43, Number 170,
July-September 2012

Public Banking, Financial Crisis and Development, Alicia Girón, Eugenia Correa and Patricia Rodríguez (coordinators iiec-unam, Mexico, 2010

Public Banking, Financial Crisis and Development, coordinated by Alicia Girón, Eugenia Correa and Patricia Rodríguez, brings together eight works that address, with concern, and from different perspectives, the changes in public banking and development in recent decades. Development banking, which is crucial for funding development in Latin American countries, has decidedly weakened as a result of the process of economic, financial and trade reforms brought into force through the application of the neoliberal model. Companies and governments in emerging economies are faced with the need to turn to private capital markets to meet their own funding needs, given the difficulty of obtaining public funding.

Some articles, such as that of Patricia Rodríguez and Jorge Ludlow, deal with a theoretical perspective. They propose a new macroeconomic policy, one that studies the interwoven relationship between the economic and policy interests of groups in power, providing the State with policy stability and economic growth as objectives. Parting from this premise, they revise the main models of policy cycle and the theoretical approaches that link policy decision making to economic policy manipulation, mainly through the control variables such as unemployment and inflation.

Alicia Girón examines the changes to development banking within the process of financialization, as part of a new institutional framework in which the work of funding passes from the hands of intermediary financers. Their paradigm towards financing is profitability and efficiency, leaving longer term projects, which are key to driving development, such as investment in infrastructure, and projects with greater social returns, to one side. She emphasizes the role of these institutions and the State as guarantor of development funding processes and highlights how these institutions are an alternative for facing current financial crises. Finally, she undertakes a study of the main public banks in Latin America, as well as the main financial intermediaries in social banking in the region.

In global economics, the handling of monetary policy is a significant mechanism for achieving the key objective of financial stability. Alma Chapoy’s aim is to show the role played by the central banks within a panorama of increasing financial instability, particularly the fed, its relationship with the “bubbles” generated and its effects on economic stability. The U.S housing bubble is examined, which results in one of the most serious financial crises this country has faced. The issue of the intervention or non-intervention of the central banks in the face of these bubbles is raised, as well as what the role of these institutions should be in terms of controlling prices and the crises that they themselves can generate.

In the article “Public banking, crisis and development,” through an analysis and explanation of classic banking crises, Wesley Marshall shows how public banking can be immune to this type of crisis. As well as being the most recurring, these crises have been the most harmful due to their destructive economic capacity. Both types of banking, private and public, respond to different institutional behavior. Marshall examines the basic differences that lead to these types of crises being “congenital” to private banking. So, although private banking is not safe from these crises, the macroeconomic effects can be much less significant.

Various works address the process of change of public banking in Mexico, highlighting the process of foreignization that results from the loss of monetary and financial sovereignty. Roberto Soto examines the changes in funding before and after the crisis of 1982, from when the objective was to grant credit to production, favoring other more risky types of activities such as the derivatives market. The study “New financial structure and obstacles to funding in Mexico’s private sector” explains the changes to the Mexican financial system and the effects on funding in the private sector, taking the 1994 banking crisis as a turning point. Trade and financial openness, losses in development banking, and the weakening currency, have been obstacles to private sector funding in Mexico, but above all, have been an important part of the accumulation model based on exports. According to the work of Correa, Ferreira and Gómez, these measures and reforms are the product of rising global competition and banking merger and acquisition processes, which grants them a systemic position.

This point concurs with the study by Teresa López, who assures that current banking crises have characteristics that rapidly become systemic. Her study focuses on the behavior and expansion of non-banking financial intermediaries, as she regards them to be the main cause of financial instability. The Limited Object Financial Societies (sofoles) in particular warrant her attention, owing to their unregulated credit expanding capacity. In her search for the cause of this instability, the author examines the theoretical contributions of Keynes, Minsky and Kregel, who show in general how the fragility originating in over-indebtedness and the credit bubbles, proves to be linked with the speculative and volatile nature of the financial markets.

In “Contradictions in today’s economy: development banking,” Teresa Aguirre outlines how a weakening of development banking has gone hand in hand with a fall in productive capacity in Mexico, and far from solving problems in the productive sectors, has deepened them. She traces Nacional Financiera as the main source of funding. She shows in general how not only were the arguments underlining the new funding model not true, their objectives were not met. More savings were not generated, nor was the productive sector strengthened.

Sergio Cabrera closes the book with “Crisis and financial alternatives. The constitution of a regional bank in Latin America.” This work defines the context of the crisis and global economic downturn. If the increasing volatility of the financial markets is added to Latin America’s already vulnerable position within the global market, the region’s fragile situation in the face of a crisis like the current one is made evident. Such vulnerability and fragility is the result of the type of trade and financial relations that the region maintains with the rest of the world. Current social decline has led to the failure of international financial organization objectives, and in the face of this, according to this author, a trade and financial space is urgently needed to protect the region from the power of the dollar through a funding system for Latin America, the Banco del Sur. The author introduces the potential and obstacles of this initiative, which was founded in 1999, supported by some of the countries of the region. The Banco del Sur will enable progress to be made towards less dependence on the financial markets and control of its resources, a result expected from a type of administration and rationale different to international financial organizations, where far from favoring private interests, the focus is on increasing social wellbeing and on recovering the dignified life of the population.

Patricia Duarte
Faculty of Economics, unam
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Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Nov 13th, 2017.
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