Category: Emerging markets

The Geopolitics of Financialisation and Development: Interview with Ilias Alami

Ilias ALAMI3 Comments

This interview was originally published in German in the special issue on financialisation and development policies of the journal Peripherie, September 2021, No. 162/163. Frauke Banse and Anil Shah (both based at Kassel University) spoke with political economist Ilias Alami (Maastricht University) about some of his recent work on the relationship between geopolitics, financial flows for development and emerging forms of ‘state capitalism,’ as well as related new imperialist formations. The interview was conducted via email in May 2021.  

The interview covers a series of International Political Economy topics. Ilias first locates the emergence of the Wall Street Consensus in the long and turbulent histories of the relation between finance and development as well as in secular capitalist transformations. He then outlines some of the conceptual tools he’s developed in his work in order to make sense of the contemporary interconnections of money and finance and the reproduction of imperialism and race/coloniality. Next, he situates these interconnections within broader scholarly debates about financialisation and highlights the similarities and differences between ongoing sovereign debt crises in the global South and the so-called 1980s ‘Third World debt crisis.’ Finally, Ilias discusses the recent emergence of new forms of ‘state capitalism’ and their complex relation to the extension and deepening of market-based finance. 

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The New “Passive” Wall Street Counterparts for States in the Global South

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By Jan Fichtner and Johannes Petry

In the past, during the time of the “Washington Consensus” developing countries from the Global South faced the IMF and the World Bank as their main counterparts in important matters of global finance. Based on our recently published research paper “Steering Capital” we argue that due to an ongoing paradigm shift in financial markets this constellation is changing profoundly. A new breed of Wall Street firms is emerging that occupies a pivotal position in the relationship between (developing) countries and financial markets – index providers.

This rise of index providers is grounded in the global shift towards passive investment. Formerly, investors gave their money to funds where a well-paid fund manager was picking stocks (or bonds) with the aim to produce above average returns – to “beat” the market in finance parlance. But now more and more investors invest in cheap passive funds (which comprise both exchange traded funds and index mutual funds) that merely track financial indices. Unlike actively managed funds, however, the passive index funds industry is characterised by enormous economies of scale – in terms of technology it is not a big difference if a passive fund has ten million or ten billion US$ assets under management. In addition, there is a strong first mover advantage. As a result, BlackRock, Vanguard and State Street dominate passive funds as the “Big Three”. Excellent recent work has since focused on how this “new money trust” is shaping the emergent ”American Asset Manager Capitalism”.

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The perils of monetary policy in the global periphery during the Covid-19 pandemic

nreismx2 Comments

For several decades, countries of the periphery have been deeply in the grip of debt. The Covid-19-induced crisis has severely accelerated indebtedness and thus increased financial vulnerability. Recent policy measures by peripheral governments and central banks have brought momentary relief, but ultimately represent a manifestation of the interests of finance capital to get the most out of peripheral economies as long as it is still possible. 

Because of the dependence of their currencies on international capital flows, political autonomy in peripheral economies is extremely limited due to the possible effects of political decisions on the movement of such flows. The enormous power of financial markets over monetary policy in the periphery is again becoming evident during the current crisis. The crisis in the global periphery is generally much more severe than in the central countries, not only because of often inadequate health systems that have been abandoned under three decades of neoliberal policy. As peripheral assets do not serve as a store of value, “investors” withdrew almost 100 billion dollars from “emerging markets” within three months, constituting a historically unprecedented capital flight. Factors such as the deflation of prices of primary resources, the fall in external demand for manufactured products, and the fall in cash flows due to decreasing remittances and tourism mean that financial pressure has increased even more. Consequently, peripheral currencies significantly depreciated with the beginning of the crisis, in some cases by as much as 20-30%, as in the cases of Brazil and Mexico.

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When does state-permeated capitalism work?

Andreas NölkeLeave a comment

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In recent years, state capitalism has become an important buzzword in the development economics discussion (again). In view of the very different ways in which this term is used, Ilias Alami and Adam Dixon recently highlighted the dangers of using the term too loosely in an article in Competition and Change. In view of its recent popularity, state capitalism could suffer a similar fate to the terms “neoliberalism” or “financialisation” by becoming a very loose rallying cry without any significant analytical value. To overcome this problematic situation, Alami and Dixon propose that future research should (1) develop a theory of the capitalist state, (2) circumscribe the time horizons of state capitalism, and (3) locate state capitalism more precisely in territorial and geographical terms.

Although I am not sure whether the genius can be put back into the bottle by developing a unified theory of the state (too many different theoretical traditions are involved by now), I am very sympathetic to the latter two demands. Our recently published book “State-permeated Capitalism in Large Emerging Economies” (Routledge) is a modest contribution to the latter goals. It deals with the economic development of Brazil, India, China and South Africa between 2000 and 2015. Departing from a “comparative capitalism” perspective, we have developed an ideal type of state-permeated capitalism – as opposed to liberal, coordinated and dependent capitalism – and examined to what extent large emerging markets are approaching this ideal type. Read More »

Facing a liquidity tsunami? Profit, risk, and discipline in emerging markets

Ilias ALAMI1 Comment

moneypower

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 ‘tsunami de liquidez’, a ‘liquidity tsunami’, 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. 

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 »

Currency crisis in Argentina or the IMF’s tango

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By Roberto Lampa and Nicolás Hernán Zeolla

The Argentinian government has requested financial assistance from the IMF to tackle the consequences of a serious currency crisis. Last Wednesday, the government emphatically announced the new terms of such an agreement. However, unpacking the terms of those agreements and the current situation reveals serious concerns about the country’s future .

A few months back (see here), we provided an analysis of the current Argentinian crisis, highlighting the excessive vulnerability of the economy produced by the abrupt financial deregulation carried out by Macri’s administration. Three aspects in particular threatened the country’s future prospects: the deregulation of foreign exchange that failed to stop capital flight, a boom in foreign debt (at a record level among emerging market economies) and the promotion of speculative capital inflows to carry trade (buying financial instruments issued by the Central Bank called LEBAC in order to pursue carry trade operations).

When international conditions worsened and the carry trade circuit came to an end, the “LEBAC bubble” exploded and produced a tremendous foreign exchange crisis that shook the Argentine economy, causing a sharp rise in inflation and a severe recession from which the country has not yet managed to escape. Read More »

How History Matters in Post-Socialist Economies

Aleksandr V. Gevorkyan1 Comment

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Though it has been suggested that ‘The Beatles Rocked the Kremlin’ it was “Wind of Change” by Scorpions in the early 1991 that captured the minds of the new generation of Eastern Europe (EE) and the Former Soviet Union (FSU).

The promise of more open societies following Mikhail Gorbachev’s perestroika announcement set in motion powerful dynamics completely transforming the world. The Berlin Wall fell in 1989 and by the end of 1991 the Soviet Union disintegrated bringing down the entire socialist institutional edifice. Newly independent nation-states emerged across Europe, the Caucasus, and Central Asia. This new “wind” was that of hope, progressive stability and economic prosperity, or so it seemed at the time. And yet, “[f]or whom the wall fell?” as Branko Milanovic has recently inquired, is not as straightforward as might have been expected.

Despite the independence premium in national policy and in parallel with evidence suggesting recent strong economic growth the post-socialist economies are yet to achieve the ideals announced at the outset of market reforms. Ironically, the most unfortunate economic plan was the 1990s script of transition from planned economy to free market in the EE and FSU.

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Unanswered Questions on Financialisation in Developing Economies

Carolina Alves2 Comments

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The discussions of the processes behind the growing importance of finance, financial transactions and financial motives, as well as the sustainability of the financial systems, have been located in the critical political economy debate of financialisation and neoliberalism (Crotty, 2003; Epstein, 2005; Fine, 2013; Lapavitsas, 2013; Palley, 2016; Sawyer, 2013; Stockhammer, 2004).

The analysis of financialisation in developing and emerging economies (DEEs) is relatively novel (Bonizzi, 2013). It is rooted in earlier discussions about the risks of financial globalisation and liberalisation (Akyuz & Boratav, 2005; Barbosa-Filho, 2005; Crotty & Lee, 2005; Frenkel & Rapetti, 2009; Grabel, 2003; O’Connell, 2005; Palma, 1998; Taylor, 1998), including the Latin American Structuralist literature on the hegemonic role of the US dollar and its financial and monetary implications for DEEs (Belluzzo, 1997; Braga, 1997; Fiori, 1997; Miranda, 1997; Tavares, 1997); the debate on capital account liberalisation and capital market integration (Cohen, 1996; Rodrik, 1998; Stiglitz & Ocampo, 2008; Strange, 1994); and the Minsky-inspired currency and boom bust dynamics of financial crisis in developing economies (Arestis & Glickman, 2002; de Paula & Alves, 2000; Dymski, 1999; Kregel, 1998; Schroeder, 2002).Read More »