Urgency of a New Regional Financial Architecture …...Urgency of a New Regional Financial...

Urgency of a New Regional Financial

Architecture and more policy space for

financial, macroeconomic and social

stability

Pedro Páez PérezEcuador

The relationship between financial services liberalization,

the regulatory framework and financial stability

WORKSHOP ON TRADE IN FINANCIAL SERVICES AND DEVELOPMENT

WTO, Geneva, 26 June, 2012

Financial and trade liberalization:

decades of modernization,

differentiated growth and instability

GLOBAL INCOME DISTRIBUTION IN 1970

GLOBAL INCOME DISTRIBUTION IN 2006

Could the genius get back to the bottle?US Growth of financial and nonfinancial profits relative to GDP

(1970 = 100)

http://www.monthlyreview.org/081201foster-magdoff.php

Global GDP = 63‘’ vs. “Normal Debts” = 212’’ vs.

Financial Derivatives = 1500’’

Each time, more acute cycles of speculative and

not physical investment

54’’

48’’

34’’

65’’

55’’

45’’

25938’’

32’’

34’’

28’’

36’’

173 318 576 627 197 259 215 217 409 417 193 EQUITY/ IPO

Unsustainable balance sheets make up

Financial Hegemony Geopolitics

During the crisis, the South´s public

external debt has risen in 20%

DEVELOPING COUNTRIES OUTSTANDING PUBLIC EXTERNAL DEBT

-in billions of US dollars-

Out of 37 millon

corporations in

Orbis 2007,

only 43060 TNC

control the

fundamental and

are interlocked by

ownership

relationships.

1318 of them

produce 60% of

the global GDP

and only 147 the

The larger 50 TNC (out of 147)• 1. Barclays plc

2. Capital Group Companies Inc3. FMR Corporation4. AXA5. State Street Corporation6. JP Morgan Chase & Co7. Legal & General Group plc8. Vanguard Group Inc9. UBS AG10. Merrill Lynch & Co Inc11. Wellington Management Co LLP12. Deutsche Bank AG13. Franklin Resources Inc14. Credit Suisse Group15. Walton Enterprises LLC16. Bank of New York Mellon Corp17. Natixis18. Goldman Sachs Group Inc19. T Rowe Price Group Inc20. Legg Mason Inc21. Morgan Stanley22. Mitsubishi UFJ Financial Group Inc23. Northern Trust Corporation24. Société Générale25. Bank of America Corporation

• 26. Lloyds TSB Group plc27. Invesco plc28. Allianz SE 29. TIAA30. Old Mutual Public Limited Company31. Aviva plc32. Schroders plc33. Dodge & Cox34. Lehman Brothers Holdings Inc*35. Sun Life Financial Inc36. Standard Life plc37. CNCE38. Nomura Holdings Inc39. The Depository Trust Company40. Massachusetts Mutual Life Insurance41. ING Groep NV42. Brandes Investment Partners LP43. Unicredito Italiano SPA44. Deposit Insurance Corporation of Japan45. Vereniging Aegon46. BNP Paribas47. Affiliated Managers Group Inc48. Resona Holdings Inc49. Capital Group International Inc50. China Petrochemical Group Company

Various myths had been destroyed:

Fresh theoretical discussions

Historical matrix of dependency and

specificities of Neo- liberalism and

financiarization in Latin America

The historical matrix of dependency

• LA place in the division of labor since the conquest bythe European metropolis created a trade structure and a trend still ruling most of LA economy

• Macroeconomic and financial dependency structured a virtual “dollar bloc” during the 20th century, withvarying articulations:

– Bretton Woods (1944): ISI and “Keynesian” institutions

– Dollar floating (1968-1973): invisible or iron hand?

– External debt crisis (from 1982): orthodoxy’s blackmail

– ”Washington Consensus” (1990): structural reforms

• Erosion of money functions and policy space reduction

Significant reduction in the rate of investment

(physical, “natural” and “human” capital)

IMPORT SUBSTITUTION INDUSTRIALIZATION REGIME OF

ACCUMULATION

Fuente: CEPAL (2008)

FINANCIARIZED REGIMEN OF

ACCUMULATION

2008ª= Proyectada

LATIN AMERICA: RATE OF INVESTMENT- GDP

Investment in infrastructure

CEPAL,2011

Latin America *: investment in infrastructure 1980-2006

As a percentage of GDP

*Argentina, Brasil, Chile, Colombia, México y Perú

The road capacity is insufficient.

Shortage of competitive rail

services

FINANCIARIZED REGIME OF ACCUMULATION

• Chart 5.1

Share of compensation of employees in national income, selected country groups,

1980 - 2008

FINANCIARIZED REGIMEN OF ACCUMULATION

• Chart 5.1

Share of compensation of employees in national income, selected country groups,

1980 - 2008

FINANCIARIZED REGIMEN OF ACCUMULATION

De-industrialization, job precarization

and increasing social polarization

2008b/= Proyectadas

LATIN AMERICA: POVERTY AND INDIGENCE EVOLUTION 1980-2008

Percentages Population

…with a 15% increase in the number

of indigents…

2008b/= Proyectadas

…and 34% growth in the amount of

poor people…

2008b/= Proyectadas

Some mitigation with the progressive

governments

2008b/= Proyectadas

Austerity meant a sharp and

continuous increase of poor people

FINANCIARIZED REGIME OF

ACCUMULATION

IMPORT SUBSTITUTION INDUSTRIALIZATION

REGIME OF ACCUMULATION

LATIN AMERICA: NUMBER OF PERSONS UNDER THE POVERTY LINE 1970-1995

Not only social polarization but...

ACCUMULATION

IMPORT SUBSTITUTION

INDUSTRIALIZATION REGIME OF

ACCUMULATION

LATIN AMERICA: GDP, EXTERNAL AND FISCAL BALANCES IN RATES OF GROWTH AND PERCENTAGES OF GDP 1950-2010

Not only social polarization but...

ACCUMULATION

IMPORT SUBSTITUTION

ACCUMULATION

…a poorer productive

performance...

ACCUMULATION

IMPORT SUBSTITUTION

ACCUMULATION

IMPORT SUBSTITUTION

ACCUMULATION STAGNATION AND

VOLATILITY

Poorest performance even in their

own terms...

ACCUMULATION

own terms...

ACCUMULATION

own terms...

ACCUMULATION

EXTERNAL

VULNERABILITY

...with higher levels of vulnerabilities

ACCUMULATION

FISCAL

VULNERABILITY

Fuente: BANCO MUNDIAL (2009)

More dependent from the ineternational markets

Terms of trade 1900-2008

IMPORT SUBSTITUTION

INDUSTRIALIZATION REGIME

OF ACCUMULATION

FINANCIARIZED

REGIME OF

ACCUMULATION

…And the outflow of resources

CEPAL,2011

Net outflows of Latin America and the Caribbean: foreign direct investment

(In millions of US dollars)

Deregulation of the Economy

1970 1975 1980 1985 1990 1995 2000 2005

Index (1970=100)

Index of Latin American share of imports in GDP

Index of labour productivity in the Latin American manufaturing

Weakening of international insertion quality

IMPORT

SUBSTITUTION

INDUSTRIALIZATION

REGIME OF

ACCUMULATION

1970 1975 1980 1985 1990 1995 2000 2005

Index (1970=100)

IMPORT

SUBSTITUTION

INDUSTRIALIZATION

REGIME OF

ACCUMULATION

1970 1975 1980 1985 1990 1995 2000 2005

Index (1970=100)

IMPORT

SUBSTITUTION

INDUSTRIALIZATION

REGIME OF

ACCUMULATION

...based on a problematic international

insertion to the global economy

LATIN AMERICA: FISCAL REVENUES AND EXPORT PRICES

IMPORT

SUBSTITUTION

INDUSTRIALIZATION

REGIME OF

ACCUMULATION

FINANCIARIZED

REGIME OF

ACCUMULATION

Latin America role in the cojuncture:

lending cheap and borrowing dear

Potential crisis vectors on Latin America:

Jeopardizing mechanisms in a robust

economy

Potential crisis vectors on Latin America

Exports contraction

(prices and

quantities)

Exports contraction

(prices and

quantities)

Trade related credit

crunch

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Balance of payments

crisis recurrent

“angst for dollars”

effects

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Balance of payments

crisis recurrent

effects

Speculative attacks

and permanent

devaluatory

pressures

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Transnational

shyphon out effects

Balance of payments

crisis recurrent

effects

Speculative attacks

and permanent

devaluatory

pressures

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Transnational

shyphon out effects

Balance of payments

crisis recurrent

effects

Speculative attacks

and permanent

devaluatory

pressures

Pervasive short

termism and

predatory

speculation in the

financial sector

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Transnational

shyphon out effects

Balance of payments

crisis recurrent

effects

Speculative attacks

and permanent

devaluatory

pressures

Pervasive short

termism and

predatory

speculation in the

financial sector

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Transnational

shyphon out effects

Balance of payments

crisis recurrent

effects

Speculative attacks

and permanent

devaluatory

pressures

Negative

expectations on

loans repayment

(credit

supply/demand)

Pervasive short

termism and

predatory

speculation in the

financial sector

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Transnational

shyphon out effects

Balance of payments

crisis recurrent

effects

Speculative attacks

and permanent

devaluatory

pressures

Negative

expectations on

loans repayment

(credit

supply/demand)

Bank erosion and

bad private

productive

investment

environment

Pervasive short

termism and

predatory

speculation in the

financial sector

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Transnational

shyphon out effects

Balance of payments

crisis recurrent

effects

Speculative attacks

and permanent

devaluatory

pressures

Negative

expectations on

loans repayment

(credit

supply/demand)

Bank erosion and

bad private

productive

investment

environment

Pervasive short

termism and

predatory

speculation in the

financial sector

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Transnational

shyphon out effects

Balance of payments

crisis recurrent

effects

Speculative attacks

and permanent

devaluatory

pressures

Negative

expectations on

loans repayment

(credit

supply/demand)

Bank erosion and

bad private

productive

investment

environment

Animal spirits down

Pervasive short

termism and

predatory

speculation in the

financial sector

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Transnational

shyphon out effects

Balance of payments

crisis recurrent

effects

Speculative attacks

and permanent

devaluatory

pressures

Negative

expectations on

loans repayment

(credit

supply/demand)

Real wage reduction

and budget cuts

Bank erosion and

bad private

productive

investment

environment

Animal spirits down

Pervasive short

termism and

predatory

speculation in the

financial sector

Exports contraction

(prices and

quantities)

crunch

Commodity bubbles,

external and fiscal

uncertainty and

instability

Transnational

shyphon out effects

Balance of payments

crisis recurrent

effects

Speculative attacks

and permanent

devaluatory

pressures

Negative

expectations on

loans repayment

(credit

supply/demand)

Real wage reduction

and budget cuts

Bank erosion and

bad private

productive

investment

environment

Animal spirits down

Pervasive short

termism and

predatory

speculation in the

financial sector

Financial-

economicc

crisis

The Ecuadorian Proposal for a

New Regional Financial

Architecture

The Ecuadorian Proposal for a

New Regional Financial

Architecture

New Regional Financial Architecture

A new-type-of-

development bank

A new-type-of-

development bank

New Central

Banking

(network)

A new-type-of-

development bank

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

A new-type-of-

development bank Banco del

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

A new-type-of-

development bankBanco del

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

A new type of development bank

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

UNASUR (CELAC ?)’s Financial

Instrument (Councils of Ministers)

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

Souverain systems of credit and

mobilization of divises, national and

regional currencies

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

Souverain systems of credit and

mobilization of divises, national and

regional currencies

New epistemologic and axiologic

parameters (internalization of

externalities in indicators, code of

ethics, CSR, etc)

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

A bank for a new type of

development

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

development

Food Sovereignity

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

development

Food Sovereignity

Health Care Sovereignity

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

development

Food Sovereignity

Energy Sovereignity

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

development

Food Sovereignity

Energy Sovereignity

Knoeledge Production Sovereignity

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

development

Food Sovereignity

Energy Sovereignity

Natural Resources Sovereignity

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

development

Food Sovereignity

Energy Sovereignity

Infrastructure Sovereignity

A new-type-of-

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

development

Food Sovereignity

Energy Sovereignity

Infrastructure Sovereignity

Popular Economy

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Sovereign Management of Liquidity

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Multilateral Swaps Matrix

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Emergency Facility for Balance of

Payments

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Payments

Emergency Facility for Treasuries

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Payments

New System of regional Reserves

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Payments

New System of regional Reserves

•Special drawing rights

(global and regional ones) s

•Physical gold and natural

resources

•Divises

•National and regional

currencies

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Regional

fiduciary

currency

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Regional

fiduciary

currency

Micro-regional fractal

reproductionNet of networks for local and

regional circuits of settlements

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Regional

fiduciary

currency

Micro-regional fractal

reproductionNet of networks for local and

regional circuits of settlements

Macro-regional fractal

reproductionNew type of North-South

negotiations and new options for

South –South cooperation

mechanisms (swaps and credit)

A new-type-of-

Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Regional

fiduciary

currency

Real Policy Space for all countries

assuring universal right to work

• Convergence towards a new Bretton Woods:

– Global protection of production-related financeseparated from speculative one (Glass-Steagall )

– Bloc regional monetary arrangements (regional SDR) + global SDR as lender of last resource

– Capital controls and financial re-regulation

– Universal ban on naked short selling and CDS

– Universal Tobin Tax

– Free excess international reserves fordevelopment

Thanks

Urgency of a New Regional Financial Architecture …...Urgency of a New Regional Financial...

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Transcript of Urgency of a New Regional Financial Architecture …...Urgency of a New Regional Financial...

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