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

Given this scenario, how can governments finance activities that aim for the welfare of their population if they use public resources to rescue private enterprises from bankruptcy? In Mexico, between 15% and 20% of the gdp was destined to the 1994/1995 crisis, and in subsequent years, factories, airlines and highways have been rescued, among other entities, but the funds run out when trying to increase educational or health infrastructure.

Development financing is essential, but as long as the barriers continue to exist, Latin America will not be able to emerge from underdevelopment. Correa (2008) defines three limits on financing:

  1. Dependence on foreign capital flows, because these require growing capital flows for profits, dividends and interest. The cost of these flows exceeds the flows themselves.
  2. The condition of weak local currencies in the context of the international monetary system.
  3. The failure of local governments to sustain moderate deficit levels when inflationary processes are lagging.

Poverty and marginalization abound, accompanied by water scarcities, fertile grounds, etc. and complicate the panorama. As such, immediate action is necessary. Human development should be the priority, and nations should not wait for economic growth to confront problems: the classical concept has failed.


The financial bubble that began at the end of the 1980s put pressure on European countries and the United States, but the epidemic was greater for economies with income that depends on the sale of a single product (raw materials such as agricultural and energy products, or on income from worker remittances), as is the case for many Latin American nations.

The deepening of the crisis is generating increased poverty; data from the United Nations and the eclac backs up this statement. Together with the above, low growth and a lack of policies to fight against these issues promise a rather discouraging future.

These problems must be fought on the structural level and immediately: the population needs it. It is necessary to define both governmental and public policies that allow countries to emerge from the underdevelopment, backwardness, marginalization and poverty to which the large majority of Latin American nations are subject. Governments must assume responsibility in areas such as education, health, housing and others, creating programs to combat the poverty and backwardness in the areas described, and not merely manage problems. Public employment programs must be created to provide the population with income and make the internal market more dynamic. Salaries must be fair to allow people the decent standard of living to which they have a right (Soto, 2012).

These are the basic tasks that must be undertaken by Latin American governments, but there are limitations that hinder these efforts, such as those described by Guillén (s/f): a) income concentration, b) excess internal and external debt and c) restrictive currency, fiscal and monetary policies. This leads to severe economic stagnation and increasing inequality, features of the neoliberal model.

It will be necessary to replace the current economic model by an alternative that places greater priority on development of the population, strengthening domestic markets through policies that seek to increase internal demand by improving population incomes. Only well-paid jobs can help achieve this. Nations exist in different circumstances, so each must adopt the policies that fit best, but in general, they should seek to achieve and strengthen sovereignty by transforming their productive and social structures.

Guillén (s/f), citing Furtado, writes that the strategy must contain the following points, at minimum:

  1. reestablish the internal market as the dynamic center of the economy,
  2. reverse the process of income concentration and eliminate extreme poverty,
  3. make financing of development depend on internal savings and reduce the weight of external debt service and
  4. apply fiscal, monetary and currency policies compatible with development.

We conclude by stating that Latin American development must be accompanied by a strong push from public financing, particularly through development banks, which are no longer driving development, as shown by Vidal and Marshall (2010). Nations such as Brazil have stepped up. Countries such as Ecuador want to reverse the process but continue using the dollar. Mexico is an exceptional case (an economy with a double monetary pattern, dependent on the United States, their financial system is practically in the hands of foreigners, among other negative features). In Bolivia, the oligarchy impedes progress and Venezuela has multiple struggles.

The people require a transformation. Citizen participation is essential to achieve this, and together with a change in policy, governments can reach this objective. A sick people, lacking education and living in fear, are easy to dominate. Perhaps that is why they do not receive the minimum conditions to which they have a universal right.

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Published in Mexico, 2012-2018 © D.R. Universidad Nacional Autónoma de México (UNAM).
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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