Financial Instability in Latin America:
A Minskian-Kaleckian Perspective
Tsuyoshi Yasuhara
Financial Instability: Capital Accumulation and Payments Abroad ( ...continuation )

For equations (4) and (7), the result is:

These correspond to the case where, given an increase in the payment of profits and interest abroad, both domestic investors and businessmen have an increased propensity to save. In emerging economies, it is natural for the rate of increase of accumulation to exceed the rate of increase for domestic savings, as we consider the following: In an economy where there is productive capacity that is not being used, the following is generated:

However, if we consider that capacity utilization is the endogenous variable as in Orebro ( Op cit.) it is possible that oligopolistic companies prefer to advance the accumulation of capital by reducing their level of capacity utilization and increasing the mark-up rate on prices. For (12), lead to the higher possibility that

The total profit data for Latin America is not made explicit. Figures 1 and 2 indicate the expansion of payments of profits and interest abroad starting in 2002, as well as the evolution of fixed investment and domestic savings. Figure 7 shows the high probability for the increase in profits. Comparing the evolution of these factors allows us to assume that starting in 2002, was established, generating financial speculation. Moreover, the following conditions were of note:

  1. Figure 5 indicates the increased evolution of the rate of accumulation until 2008, while the capacity utilization rate saw decreasing change starting in 2003.
  2. As a result of financialization, the flow of transferring profits and utilities abroad has grown. Decreased revenue is a result of the higher propensity for businessmen and domestic investors to save.

In this way there is a chance that between 2002 and 2008, the necessary conditions for an outgoing adjustment dynamic were created. In the high growth phase led by exports and fdi, the Latin American economy was in a stage of financial speculation and/or Ponzi financing, which brought about macroeconomic risk due to adjusting the capacity utilization rate.

The World Investment Report 2011, published by the United Nations Conference on Trade and Development (unctad) and Safarian (2011) reveals that in the global economy nearly 50% of fdi was in the form of cross-border mergers and acquisitions from institutional investors between 2003 and 2008 leading to an increase in the stock market index. This produces a situation whereby additional profits must be paid to foreign investors, also during a time of decreased interest rates in the global market.


The composition of the balance of payments in Latin America has been in a unique position since 2002, and the payment of profits and interests abroad has been a defining element. The favorable evolution of fixed investment also brought about excessive domestic savings, while the capacity utilization rate continued to decrease. We have adopted the Kaleckian investment function and Minsky’s theory of financial instability. Macroeconomic financial instability in emerging markets reflects an increase in risk for the debtor as a result of the growth of payments of profits and interest abroad. This research allows us to discern the high probability of an outgoing adjustment dynamic, which corresponds to instability in the balance generated by Ponzi financing.