Brazil is in a crisis again. The COVID-19 pandemic has spread across the country and听听has led to a massive health crisis. Investment outflows have been听听and the Brazilian real has听 dramatically. The Brazilian economy is set to again after three years of weak positive growth.
Brazil鈥檚 development bank Banco Nacional de Desenvolvimento Econ么mico e Social (BNDES) has announced some听听to deal with the financial instability caused by the COVID-19 pandemic. However, these measures are being听听for being insufficient. Rather than being a temporary policy mistake that can be corrected easily, BNDES鈥� passive response is linked to the bank鈥檚 structural retreat from the economy over the past five years.
During the 2000s, BNDES听wasacclaimedas a catalyst ofthe country鈥檚 economic growth. Globally, developing countries such as saw the rise of BNDES as something favourableand sought to mobilise their own national development banks.
By acting as of major domestic companies, BNDES played a key rolein Brazil鈥檚state-activist growth modelof which the observers have labelled 鈥�,鈥� 鈥�,鈥� or 鈥�.鈥�Furthermore, BNDES actively supported national champions鈥� strategy by financing export and investment activities. During and after the global financial crisis, BNDES鈥� role extended and was used by the government to carry out . Read More »
This piece was written before the Coronavirus outbreak. It is a timely proposal of action. Given the high exposure of the developing world to the virus in contexts of medical and other logistical shortcomings, the damage to their productive capacity is likely to be much more severe than for the advanced world. 听This fact is already reflected in particularly sharp virus-stirred capital outflows from these countries. 听All this greatly increases their exposure to the present global structures for sovereign insolvency, and the urgent need for those structures to be radically reformed鈥攁s the authors propose with the Pre-Emptive Sovereign Insolvency Regime (PSIR).
In a radical call for reform of the IMF鈥檚 pro-creditor and anti-growth approach to indebted countries in Africa, Ndongo Sylla and Peter Doyle argue that the continent has a choice to make. Creditors, using the IMF, must be stopped from forcing devastating output losses by imposing high primary surpluses.
Within a decade, just to keep up with the flow of new entrants into its labour markets, sub-Saharan Africa needs to create 20 million new jobs every year. This is a huge challenge. But it is also a thrilling opportunity鈥攖o harness the energy and creativity of all of Africa鈥檚 young.
However, after it reviews these issues in Africa, the IMF鈥檚 immediate message鈥攍iterally in the same sentence鈥攊s to pivot to 鈥榖udget cuts to secure debt sustainability!鈥�
That is plain wrong. For Africa to meet its development objectives, the IMF must radically change its pro-creditor anti-growth approach to highly indebted/insolvent countries.Read More »
Official calls are mounting. On March 23, African Finance Ministers met virtually to discuss their efforts on the social and economic impacts of COVID-19. Amidst a broad recognition of chronic financing gaps to meet development and climate objectives, they called for a on all debt interest payments, including the potential for principal payments for fragile states. The United Nations General Secretary addressed the G20 emergency meeting conference call on COVID-19. Along with calls for medical and protective equipment, the need to was stressed, 鈥渋ncluding immediate waivers on interest payments for 2020鈥�. The World Bank President addressed the emergency G20 Finance Ministers encouraging bilateral IDA relief without missing the opportunity 听
replete with grand aspirations, but no timeframe specified to fulfil them, was vague in respect to debt issues and far short of what is needed: 鈥淲e will continue to address risks of debt vulnerabilities in low-income countries due to the pandemic.鈥� Hardly commensurate to the alarm bells that have been ringing over the past five years of growing debt difficulties in a number of countries.听Read More »
In April 2012, at the White House on her first visit to the United States since her election in 2010, Brazilian president Brazil Dilma Rousseff scolded advanced capitalist economies for unleashing a 鈥�tsunami de liquidez鈥�,a 鈥榣iquidity tsunami鈥�, onto the developing world. The expression liquidity tsunami suggests that the sheer scale and volume of financial capital flows to developing and emerging markets had become an issue. It indicates that these quantities were overwhelming and could trigger devastating damages.听
This in itself is puzzling. Have we not been told by development economists and practitioners that financial capital flowing into the poorer areas of the world economy is something good and desirable? That one of the main causes of underdevelopment is actually the lack of capital and domestic savings in developing countries, and that this should be compensated with foreign capital inflows? Following this line of reasoning, vast swathes of financial capital flowing into emerging markets surely should be seen as a boon.
And there was some truth to that. The capital flow bonanza from the mid-2000s to late 2013 (coupled with the primary commodity super-cycle) did deliver some benefits to emerging markets. It helped governments fund themselves at better conditions. It provided the material basis for significant redistribution via a number of social policies. It contributed to economic growth performances much higher than over the previous decade. It also made a minority of people much richer in a very short period of time. In sum, the capital flow boom temporarily helped deliver some economic and social gains, and this was instrumental in consolidating social contracts between governments and their populations.Read More »
National development banks are in fashion and here to stay. A number of countries benefited from the global economic boom during the 2000s as exports and commodity revenues surged. These countries鈥� governments stored some of the current and fiscal account surpluses and used the capital to expand state financial institutions. Two prominent types of institutions have grown rapidly, namely (SWFs) and (NDBs), which often have financial return and development stimulation as their core mandates, respectively. Much attention has been afforded to how these organisations鈥� activities have turned into a . For example, the Norwegian SWF鈥檚 investment spans across , including shares in more than 9,000 companies, and China鈥檚 NDBs have emerged as the developing world鈥檚 project backer.
More recently, NDBs have been identified as important agents in funding domestic development projects in a wide range of . The perceived role of NDBs is from a reactive counter-cyclical role towards a proactive patient capitalist role. Popularity in NDBs may appear to be obvious due to the rising interest in pursuing state-designed and over the past decade. While many observations have focused on the growing inclination towards state activism as catalyst to NDBs鈥� expansion around the world, this piece examines three structural challenges incentivising developing countries to mobilise NDBs.听Read More »
The 鈥榙o or die鈥� Brexit deadline this Halloween has come and gone without bringing much certainty about the policy and political landscape going forward. UK voters who hoped for a clear-cut end of the Brexit saga were disappointed as big questions remain unanswered while new ones have been added: What will the December election bring? Will there be a second referendum? A different deal? A further extension?听
There seems, however, one definite outcome of the Brexit process: UK democratic institutions have been hollowed out permanently. Individual politicians have certainly contributed to this outcome. However, it would be too easy to blame the disintegration of democracy in rich countries entirely and exclusively on Johnson, Trump, and the like. Rather more systematic and structural trends are at play, which raise the old question of whether capitalism and democracy are compatible or rather contradictory systems. The claim that capitalism will usher in democracy, since free markets rely on an open societal order, or at least fundamentally weaken authoritarian regimes, has been proven untenable. This is particularly clear as the Chinese Communist Party tightens its grip over social media, using information technology to survey ever-growing parts of Chinese people鈥檚 lives.听听听
It is striking though that among rich countries the crassest examples of democratic disintegration are unravelling in the two Anglo-Saxon economies which have been hailed as economic success stories during the 1990s and early 2000s: the UK and US. Much of their growth spurts over this period was fuelled by the increasing size and influence of their finance industries and so is the current hollowing-out of their democratic institutions. In brief, we are currently experiencing the effects that financialisation has on democracy. Of course, capitalism and democracy are generally difficult to reconcile as convincingly argued by Polanyi. The fact that a democratic order calls for equality of all citizens before the law and provides all of us with the same vote, while our economic order simultaneously introduces a strict hierarchy based on ownership is possibly the clearest illustration of the conflict between democracy and economic order. But it is further stoked under financialisation. This blog post unpacks how financialization affects democracy in a variety of ways, through three examples, namely social provisioning, the Euro crisis, and the Brexit saga.Read More »
A new report published by the Washington DC office of the Heinrich 叠枚濒濒 Foundation reviews the recent initiative being led by the G20countries and their respectivedevelopment finance institutions, including the major multilateral development banks, for the financialization of development lending that is based on the stepped-up use of securitization markets.
The report details how the initiative goes beyond the Washington Consensus reforms of the last few decades by calling on developing countries to adopt even farther-reaching degrees of financial liberalization on a new order of magnitude. In what Prof. Daniela Gabor of the University of West England, Bristol, 鈥�the Wall Street Consensus,鈥� such reforms would involve a wholesale reorganizationof the financial sectors and the creation of new financial markets in developing countries in order to accommodate the investment practices of global institutional investors.
The new report, 鈥�鈥� describes the key elements of the new initiative 鈥� specifically how securitization markets work and how the effort is designed to greatly increase the amount financing available for projects in developing countries by attracting new streams of private investment from private capital markets. The paper introduces the basic logic underpinning the initiative: to leverage the MDBs鈥� current USD 150 billion in annual public development lending into literally USD trillions for new development finance. In fact, the World Bank had initially called the initiative 鈥淔rom Billions to Trillions,鈥� before finally calling it, 鈥淢aximizing Finance for Development.鈥�
While securitization can be useful for individual investors and borrowers under certain circumstances, the proposal to use securitization markets to finance international development projects in developing countries raises a set of major concerns. The report lists 7 important ways in which the G20-DFI initiative introduces a wide range of new risks to the financial systems in developing听countries while undermining autonomous efforts at national economic development.
The key risks of securitization are:
The inherent risk because securitization relies on the use of the 鈥渟hadow banking鈥� system that is based on over-leveraged, high-risk investments that are largely unregulated and not backed by governments during financial crises;
The extensive use of public-private partnerships, despite the poor track record ofPPPs, many of which have ended up costing taxpayers as much if not more than if theinvestments had been undertaken with traditional public financing;
The degree of proposed deregulation reforms in the domestic financial sector required of developing countries would undermine the ability of 鈥渄evelopmental states鈥� to regulatefinance in favor of national economic development;
The degree of financial deregulation required would also undermine sovereignty by makingthe national economy increasingly dependent on short–term flows from global private capitalmarkets and thereby undermine the sovereign power of governments and their autonomouscontrol of the domestic economy;
The uncertainty relating to governance and accountability for the environmental, social andgovernance standards associated with development projects. Such accountabilityhas been fixed to traditional forms of public MDB financing for development project loans,but as future ownership of assets is commercialized and financialized, fiduciary obligationsto investors may override obligations to enforce ESG implementation;
The deepening of the domestic financial sectors in developing countries, as required by theinitiative, can create vulnerability as the size of the financial sector grows relative to that ofthe real sector within economies; and
The privatization and commercialization of public services, including infrastructure services,as called for by the initiative, has faced a growing backlash as reflected by the global trendof remunicipalizations. The fact that the securitization initiative is being promoted in such ahigh profile way by the G20 and leading DFIs despite all of these risks reflects an intensifiedcontest between those supporting the public interest and those supporting the private interest.
The report also documents the relatively minor degree of interest expressed so far by global financial markets in the initiative, suggesting it is not likely to galvanize the trillions of dollars claimed by its proponents.
It concludes by reviewing the arguments for the scaled up use of traditional public financing mechanisms and several of the important ways in which this can be done, including steps that could be taken by G20 countries, DFIs and governments.
Rick Rowden听recently completed his PhD in Economic Studies and Planning from Jawaharlal Nehru University (JNU) in New Delhi.
In his acclaimed poem “America” from 1956, Allen Ginsberg warned about the new vices of American society. Beyond the clear demonization of communist ideals, the star of the beat generation warned about the growing influence of the media on the thinking of individuals.
With globalization, the commodity fetishism disguised as the American dream entered not only the minds of the citizens of the United States but the rest of the globe. In addition, with the financialization of the economy, the debt culture also surpassed the American borders, reaching the countries of the Global South.
There is no day when the media does not bombard us with advertisements that promote a consumer culture, inciting us to acquire goods that we cannot afford with our income. This is where credit plays the role of a “savior entity” through which we can satisfy our deepest desires. However, unlike the developed countries, which have high levels of access to financial services, the underdeveloped countries are subject to a subordinated financialization that limits the possibilities of households and non-financial companies of acquiring a loan and, consequently, complicates the satisfaction of our consumerist spirit and the development of the productive sphere. The notion of subordinated financialization was first proposed by Jeff Powell听() to designate the specific way in which financialization manifests itself in underdeveloped economies. The level of access to financial services that a country has is known as financial inclusion, however, in the case of Mexico, this level is so low that we are facing financial exclusion.Read More »
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