Volume 44, Number 173,
April-June 2013
Latin America. Between Financialization
and Productive Finance
Roberto Soto
b) Futures curve ( ...continuation )

This practice began in 1997. Operators manipulated the earnings/loss profile to adapt it to imaginary accounting,4 which drove the price of shares at Enron, reaching a peak of 90.56 dollars per share in August 2000 (Soto, 2010: 118). This means that governments are collecting fewer resources, in part because companies report virtual losses or earnings are established in spes.

Due to the above, when the operations of financial and non-financial conglomerates do not produce the expected results, they must seek a way to compensate for losses. They disclose losses to pay fewer taxes, fire personnel to save on costs, according to the orthodox business vision, and wait for a rescue from the government. In any case, the effects on public finance are negative, and consequently there is a negative impact on growth and income redistribution.

Another case that must be examined is Argentina. Despite the relative prosperity of the banking sector and incipient economic growth reported in 2011, there has been a slowdown in financial intermediation (Central Bank of the Republic of Argentina, 2011), as reflected in the internal credit provided by the banking sector (according to World Bank indicators, this was above 50% with respect to gdp in 2002, but only at 31% in 2011). This leads to considerable economic contraction in contrast with, as previously stated, the return on assets (roa) and return on equity (roe), which are significantly higher than the standards maintained at the international level (these variables measure the return and profitability of the banking system). The case of Mexico can be used to explain this last point. Despite economic stagnation (an annual average domestic product level below 2.5% from 2000 to 2012), among other significant variables, bank returns have continued to increase, as measured by the roe and the roa (Soto, 2010: 195).

In other words, there is an inverse relationship between banking sector growth and financing for the productive sector. This proves what was previously described for Mexico. There is a functional change in the banking system. In other words, the banking business is not about granting credit, but rather other types of activities, such as financial innovation and the use of derivative instruments (Soto, 2010).

Chile is another case, with the the privatization of its pension system to finance private sector activities, that is, expose the resources of workers to highly risky activities. The same happened in Mexico, where pensions are invested in highly risky markets such as the derivatives market. This privatization has served banking capital to acquire both public debt and dfi, once again implying that earnings are privatized, but losses are socialized. To this effect, Rodríguez writes:

Social security contributions became one of the most important sources of working capital and earnings for the financial sector, even replacing foreign investment as reforms to the pension systems advanced at the end of the 1980s, as these reforms not only implied that the funds from these systems were managed by financial institutions, but also allowed these institutions to acquire financial instruments (even those with variable interest rates) (Rodríguez, 2010: 158).

In Latin America, the process of deregulation and liberalization has contracted financing channels, except for multinational companies. Another problem is that the financial model “suggests” privatization or liquidation of public development banks, whose purpose is to grant credit to the national productive sector, because according to these reformers, the institutions are inefficient and unproductive and only increase the public deficit, which is why they should cease to operate, or, as Soto (2010) writes, adopt private financial practices such as the use of dfi.

As has already been mentioned, financial innovations have led the States to pay little attention to planning and depend on foreign investment as well as bilateral and multilateral assistance and revenue coming from exported raw materials. In other words, this is financial dependence, which is why companies such as smes that are gravely in need of resources are financed by their providers or through informal financial circuits. Given the above, Latin America has a heterogeneous financial system (large companies do have access to credit channels, both public and private), which makes it impossible to generate an internal market and multiplicative effects, and by extension, human development.

Regarding financial dependence, Correa (2006) writes that this is further aggravated because Latin American nations have weak domestic currencies that must confront debt commitments made in stronger currencies. Something unique to the financialization process in Latin American countries is their position as second order assets within international speculative operations. This is because nations of the Americas foster speculative transactions among ii and banking conglomerates through diverse means, such as: resources coming from the pension system, public debt operations, acquisition of state enterprises, speculation in currency markets and prices of principal commodities (oil, basic grains, natural gas, metals, etc.).

4 The accounting term used in this type of operation is Hypothetical Future Value, which records inflows of capital even when the transactions have not yet been realized. This is done through futures contracts on some underlying item, which would imply that an “inflow of capital” would be recorded as earnings and in this way influence a company’s share prices.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 195 October-December 2018 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,
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