Latin America: rethinking financial dependency

Abstract

The main characteristic of the financial crises of the nineties was that they resulted in severe external financial constraints. Today, the “balancing” of the inflows and outflows of the balance of payments is done by adjusting interest rates, the key variable of economic policies. The hike in interest rates raises the cost of borrowing considerably — weakening the position of the states vis-à-vis the federal State —, and adds to the budget deficit, which cannot be contained merely by reducing public expenditure. It also leads to a reduction in the investment projects of firms. The financial logic underlying the functioning of a “casino economy” produces great instability in the economic activity, an acute social vulnerability, and the impossibility under this growth regime to obtain any significant reduction in the widespread poverty.