Financial Instability in Latin America:
A Minskian-Kaleckian Perspective
Tsuyoshi Yasuhara
Profits, Domestic Savings and Payments of Profits and Interests Abroad ( ...continuation )

Figure 7. Annual Rate of Variation of g, s and the Income Balance Deficit (%)
Source: Prepared by the author based on eclac, Latin America and the Caribbean: Historical Series of Economic Data > 5; Latin America and the Caribbean, National Accounts in Dollars at Current Prices, 1990-2008 > 5.2; Gross Domestic Product by Type of Expense, http://www.eclac. cl/deype/cuaderno37/datos/5.2.1.xls; Preliminary Economic Balance of Latin America and the Caribbean 2011, pp. 99 and 102.

Foley’s model (2003) cannot be applied to Latin American research from the last decade for a few reasons. First, the increase in the payment of profits and interests abroad, which can be identified by the deficit of the net transfer of resources, corresponds to a surplus in current accounts and capital and financial accounts. It is assumed that the inflow of fdi and portfolio investment have stimulated, at least in part, capital accumulation, and on the other hand, have supported the increased payment of profits and interests abroad. Second, since the 1990s, restrictive monetary policy has not had a negative effect on the evolution of fixed investment in the region. To demonstrate this idea in our model, we present the function of accumulation in equation (1) with the determining factor of the capacity utilization rate.

Moreover, this work addresses the effect of securitization on the economy. We consider that profits are divided into domestic savings for companies, domestic savings of investors and the payment of profits and interests abroad. With this assumption, we showed the savings function:

(2)

For a more detailed analysis, we must mention that the payment of profits and interests is not determined only by the interest rate, because the payment of profits that come from fdi and foreign portfolio investment are determined as a consequence of a business and investment strategy. Still, with the goal of simplifying the model, we use (2) in this section and we will return to this issue later on. Modifying the definition of f from (4), we obtain the function differentiated by time:

(7)

(9)

Where and are the parameters that demonstrate the speed of adjustment.