Financial Instability in Latin America:
A Minskian-Kaleckian Perspective
Tsuyoshi Yasuhara *
Date received: February 15, 2012. Date accepted: June 12, 2012

The same dynamics, namely the rise of a growth model oriented towards financial activities, have led to both the current financial crisis and global imbalances characterized by a rising public deficit in the United States. This work has two objectives. The first is to analyze how the flow of foreign investment and cross-border mergers and acquisitions affect the economy in the United States and Latin America. The second is to establish a theoretical framework of macroeconomic financial instability and apply it to examine the Latin American economy in the past decade. We propose a macroeconomic interpretation of the theory of financial instability, combined with a Minskian-Kaleckian theoretical framework.

Keywords: Cross-border mergers and acquisitions, income balance, financial speculation, rate of capital use, expected utility rate.

The international economy is currently in a severe crisis, amidst confusion in the financial markets and the deterioration of productive activities. Favorable economic performance in Latin America, which has been driven by primary sector exports and the increase in foreign direct investment (fdi) following 2002, has also become a macroeconomic uncertainty. Most research attributes current difficulties to the economic situation of industrialized countries, that is, factors outside of the regional economy. This point of view explains that during the high growth phase, Latin American economic strategies did not lead to any problems. However, these excellent results have been destroyed by the contagion of the high-risk mortgage crisis in the United States.

This work reveals that financial instability was generated during the phase of high growth. The Minskian hypothesis of financial instability focuses on the vulnerability of non-financial entities in the face of a transforming financial situation. The goal of this work is to establish the theoretical framework of financial instability in Latin American macroeconomics, as payment of profits and interests abroad are increasing. In the first section, we identify the structure of the balance of payments. In the second part, we set up the financial instability model, based on the role of investment in neo-Kaleckian and post-Keynesian theory. The fall in the capacity utilization rate is one of the key factors determining investment and the dynamic adjustment model.


The Latin American economy has undergone structural transformation throughout the last two decades. Before 2001, the balance of payment was composed of the public accounts deficit and the surplus of the capital and financial accounts, where inflows of fdi and foreign portfolio investment made up the surplus of this account.

Starting in 2002, the surplus of public accounts and the capital and financial balance stood out until 2007, while the net transfer of resources saw a negative trend (Figure 1). The region has faced consequences resulting from the rise in international prices for food and hydrocarbons. The increase in the terms of trade reached 28.1% in 2008 as compared to 2001, while the rate of variation fell to 2.6% in 2007 and 4.6% in 2008.1 The net transfer of resources, shown in the Preliminary Economic Balance of Latin America and the Caribbean , published by the Economic Commission for Latin America and the Caribbean (eclac), is defined as: the net earnings of capital minus the net profits and interests demonstrated in the income balance. The negative figures for this indicator show that net payments of profits and interests were made abroad.

The surplus of current accounts reflects the fact that domestic savings exceed fixed investment (Figures 2 and 3). The generation of excessive liquidity due to the surplus of the balance of payments provoked an expansion in savings, which reached 23.3% of the Gross Domestic Product (gdp) in 2006. Authorities adopted a restrictive monetary policy due to the high interest rate, to reduce the risk of inflation. However, this strategy did not work as an anti-cyclical policy, because fixed investment also increased from 19% of gdp in 2003 to 23.8% in 2008.

*Professor at the University of Nazan, Japan. E-mail:

1eclac, Preliminary Economic Balance of Latin America and the Caribbean 2008, p. 70.