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’’

12

1980

109

Each time, more acute cycles of speculative and

not physical investment

54’’

193

48’’

417

34’’

409

65’’

217

55’’

215

45’’

25938’’

197

32’’

627

34’’

576

28’’

318

36’’

173

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%

1.433

0

200

400

600

800

1000

1200

1400

1600

1800

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

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

40%

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

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

…a poorer productive

performance...


ACCUMULATION

IMPORT SUBSTITUTION


ACCUMULATION



ACCUMULATION

IMPORT SUBSTITUTION


ACCUMULATION STAGNATION AND

VOLATILITY


Poorest performance even in their

own terms...


ACCUMULATION




Poorest performance even in their

own terms...


ACCUMULATION



EXTERNAL

VULNERABILITY


...with higher levels of vulnerabilities


ACCUMULATION




...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


0

50

100

150

200

250

300

350

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


Weakening of international insertion quality

0

50

100

150

200

250

300

350

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

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

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

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

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

Sur

Red de Banca

Central

System of payments

compensation

(Cleareance Union)

A new type of development bank


A new-type-of-


Sur

Red de Banca

Central

System of payments

compensation

(Cleareance Union)


UNASUR (CELAC ?)’s Financial

Instrument (Councils of Ministers)


A new-type-of-


Sur

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-


Sur

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-


Sur

Red de Banca

Central

System of payments

compensation

(Cleareance Union)



A new-type-of-


Sur

Red de Banca

Central

System of payments

compensation

(Cleareance Union)


A bank for a new type of

development


A new-type-of-


Sur

Red de Banca

Central

System of payments

compensation

(Cleareance Union)



development

Food Sovereignity


A new-type-of-


Sur

Red de Banca

Central

System of payments

compensation

(Cleareance Union)



development

Food Sovereignity

Health Care Sovereignity


A new-type-of-


Sur

Red de Banca

Central

System of payments

compensation

(Cleareance Union)



development

Food Sovereignity


Energy Sovereignity


A new-type-of-


Sur

Red de Banca

Central

System of payments

compensation

(Cleareance Union)



development

Food Sovereignity


Energy Sovereignity

Knoeledge Production Sovereignity


A new-type-of-


Sur

Red de Banca

Central

System of payments

compensation

(Cleareance Union)



development

Food Sovereignity


Energy Sovereignity


Natural Resources Sovereignity


A new-type-of-


Sur

Red de Banca

Central

System of payments

compensation

(Cleareance Union)



development

Food Sovereignity


Energy Sovereignity



Infrastructure Sovereignity


A new-type-of-


Sur

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

Sur


A new-type-of-


Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Sur

Sovereign Management of Liquidity


A new-type-of-


Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Sur


Multilateral Swaps Matrix


A new-type-of-


Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Sur



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

Sur




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

Sur




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

Sur




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

Sur


A new-type-of-


Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Sur

Regional

fiduciary

currency


A new-type-of-


Sur, Banco

del Alba

New Central

Banking

(network)

System of payments

compensation

(Cleareance Union)

Fondo del

Sur

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

Sur

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

Sur

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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