Volume 44, Number 173,
April-June 2013
Latin America. Between Financialization
and Productive Finance
Roberto Soto*
Date received: August 9, 2012. Date accepted: November 20, 2012

The goal of this article is to analyze how financialization has led to a series of transformations to financial systems, especially in Latin America. This has modified their traditional ways, as is the case for both the public and private banking markets, affecting the process to finance productive activities. The foreignization of national financial systems has increased speculation and generated recurring and deeper economic crisis scenarios. Therefore the structural reforms imposed on Latin American countries have increased employment problems, inequality and poverty in the region.

Keywords: financialization, deregulation, crisis, financial system.

Latin America is facing a strong need for productive finance that would allow it to reach sustainable development. The neoliberal model would suggest that this development should come from foreign direct investment in a context of macroeconomic stability (controlled inflation, fiscal and commercial balance or surplus), that would allow an economy to achieve productive modernization.

However, the evidence has shown that this policy does not work. Although some nations are undergoing a change in their way of governing that goes against neoliberalism, the management of central banks remains in the hands of the financial oligarchy, cloaked in the famous independence of central authorities. This oligarchy maintains control over financial, monetary and fiscal policy in a restrictive manner. In other words, by controlling internal credit and issuance of currency and generating new and more taxes for the most underprivileged classes, which hinders the financing process and prolongs the structural defects that block development, such as the following: a) economic and financial dependence on developed countries (central-peripheral), b) lack of an internal market to generate multiplicative effects and c) the reprimarization and outsourcing of the productive structure.

As mentioned by Vidal and Marshall (2010), the Washington Consensus policies fundamentally altered the economic structures in Latin America, especially in the slow but steady loss of public banking in the financing process of productive activities. Girón (2010) states that the stabilization plans of the International Monetary Fund (imf) focused on the following aspects: a) dismantle the development model created at the end of the 1950s, b) foster competition between national and foreign companies and c) moderately grow the control of productive and financial assets of multinational conglomerates.

The result of this was to sharpen the crisis and its consequent effects on development among nations. This situation began to take shape in the 1960s, when the financial and commercial deregulation process was given strong support, where participants in the economy adopted new ways to compete that drove greater freedom for financial firms. The new forms of competition had the following major features: a) opacity, b) self-regulation and c) high implicit risk.

Transformations to the economic system have deepened since the 1990s. Authors such as Shiller (2003) and Stiglitz (2002) write that these changes occurred irrationally, which contradicts the tenets of today’s neoclassical theory:

The foundation of the dominant theory to explain the functioning of markets is the idea that the economic behavior of individual agents is rational. Based on the axiom of rationality, we can specify explanatory hypotheses for the behavior of consumers and producers, who seek to maximize their functions of utility and profit (respectively), taking into account the restrictions to which each group is subject (Noriega, 2001: 37).

How has the rational attitude of economic agents developed? As a result of a variety of crisis scenarios, which have been ever more common and profound, economic participants sought to protect themselves from risks inherent to their financial operations, anticipate the effects of volatility on currency variables (exchange rates and interest rates), and the effects of over-leverage. Financial deregulation led to greater competition for earnings, and with the goal of achieving profit in the shortest time possible, it was necessary to use all tools and methods available. This led to the use of all types of financial innovation, especially the management of Derivative Financial Instruments (dfi)

* Professor-Researcher at the Academic Department for Development Studies at the Autonomous University of Zacatecas, Mexico. E-mail: soer@estudiosdeldesarrollo.net.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 193, April-June 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,
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: Moritz Cruz. 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: June 27th, 2018.
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