Tuesday 18 November 2008, San José, Costa
Rica
FINANCE-BRAZIL: Payback
Time?
By Mario Osava
RIO DE JANEIRO (IPS)
- This is a good time
for all those who
resisted the
"neoliberal" free market
economic model of the
past few decades, often
as lone voices preaching
in the wilderness.
Politicians, experts and
social activists want to
take advantage of the
current financial crisis
to bury this model once
and for all, together
with all forms of
speculation.
"We must be radical and
propose structural
changes" to the
international financial
system, because "such a
serious crisis is the
best time to demand
them," French economist
Bruno Jetin, a professor
at the University of
Paris North, told IPS.
All banks should be
nationalised, but that
is not enough: they must
also be "democratised,
and subjected to social
oversight," because many
public banks, like the
Bank of Brazil, "operate
as if they were private
concerns," said Jetin,
who is also a member of
the scientific committee
of the Association for
the Taxation of
Financial Transactions
for the Aid of Citizens
(ATTAC).
There is an ongoing
"ideological dispute
among schools of
economic thought," that
goes above and beyond
operational measures to
contain the damage done
by the crisis, said
Rogerio Sobreira, a
professor at the Getulio
Vargas Foundation, a
centre for research and
teaching on public
administration in Rio de
Janeiro.
The conflict between a
greater role for the
state, and a free
market, is a crucial
debate. When the crisis
became acute, everyone
was in favour of strong
state intervention, even
the nationalisation of
banks, in all sorts of
countries, but this was
"emergency action by the
state as saviour," and
the continued presence
of the state will be
questioned by the
economic liberals later
on, according to
Sobreira.
Some internal
contradictions within
governments, especially
between Central Banks
and Economy Ministries,
are becoming more acute.
In Brazil, the dominance
of the monetary
authority (the Central
Bank) suffered a blow
when emergency measures
were needed to avoid a
greater economic
slowdown.
The finance ministers
and Central Bank
presidents of the Group
of 20 (G20), who met
Nov. 8-9 in Sao Paulo,
supported anticyclical
measures, such as
increasing public
spending and cutting
interest rates, in the
face of the recession
unleashed by the U.S.
subprime mortgage
crisis.
The disagreement between
Brazilian Finance
Minister Guido Mantega
over the conservative
policies of the Central
Bank, which advocates
high interest rates and
an unrestricted floating
exchange rate, was
already common
knowledge.
But the crisis and the
recommendations of the
G20 strengthened
Mantega's position. As
chairman and spokesman
of the meeting, he
emphasised the need for
anti-recession measures.
The president of the
Central Bank, Henrique
Meirelles, tried to
soft-pedal this
approach, underlining
instead the concerns
over inflation that were
also expressed in the
meeting’s final
communiqué, and the
special characteristics
of each country.
Panic, followed by
recession in rich
countries and its
repercussions in the
developing world, are
fuelling a rapid
expansion in
unemployment, which is
sure to provoke
reactions from trade
unions and social
movements in general,
although labour
organisations have been
weakened in the past few
decades, and will have
difficulty in leading
protests.
In a profound crisis,
active social movements
will be essential to the
fulfilment of the dream
of a financial system
that serves social
needs, like cooperative
banks, said Jetin, who
went so far as to say
that the economy, even a
capitalist economy, "can
function without a
financial market," as it
did in the past.
Jetin and Sobreira took
part in a workshop of
economists and experts
working in the "third
sector"
(non-governmental,
non-profit social
organisations) on Nov.
13 and 14, to discuss
ways of helping civil
society develop
strategies to influence
a possible future reform
of the financial system.
The goal is to reduce
its "democracy deficit,"
according to the group's
coordinator, Fernando
Cardim, a professor at
the Federal University
of Rio de Janeiro.
The international
discussion group, which
brings together
academics and activists,
is a project of the
Brazilian Institute of
Social and Economic
Analyses (IBASE). It
began in 2006 by
discussing the Basel
Accords on banking laws
and regulations, but in
the light of the current
crisis it has broadened
its scope.
Another economist in the
project, Marcos Cintra,
a professor at the
University of Campinas,
is sceptical about any
changes in the global
financial and monetary
system other than
"cosmetic" ones. In his
view, the world is
caught in an
irreversible "trap."
If the United States
reduces its external
current account deficit,
which amounts to nearly
seven percent of its
gross domestic product
(GDP), the world would
experience a
"catastrophic
depression," he said.
Therefore, "the U.S.
economy has to go on
working," with the rest
of the world, led by
China, financing its
deficit. This is a
consequence of
"functional asymmetry,"
he said.
The global financial
architecture will remain
the same, with perhaps
more regulation and
other minor
modifications, because
"only a war" -- also
unlikely -- could bring
about structural changes
in the system, since the
United States continues
to enjoy hegemonic
power, which means it
can "veto any changes,"
Cintra told IPS.
Derivatives contracts
worldwide totalled 596
trillion dollars at the
end of 2007, according
to the Bank for
International
Settlements (BIS), said
Cintra, stressing the
extent of financial
globalisation on which
the whole world depends.
That is over 10 times
the value of the gross
world product, and the
present crisis has
caused the loss of
"only" a few tens of
trillions of dollars.
Daniela Prates, a
colleague at Cintra’s
university, presented a
paper at the workshop
recognising that the
present crisis is
different from previous
ones because it has its
epicentre in the United
States, but concluding
that peripheral
countries are still
vulnerable to its
shocks, shattering "the
illusion that they would
be unaffected" by any
crisis arising in the
central countries.
Given the reality of
this situation, she
proposed the limited
goals of preventing
sharp exchange rate
fluctuations such as
have occurred in recent
months, mainly in
countries like Brazil,
Mexico, South Africa and
South Korea, by
"controlling capital"
with some restrictions
on short-term
speculative investments.
This measure has been
adopted by many
countries, including
some with conservative
governments, but it has
been rejected by the
countries mentioned.
This is another issue
that puts the Central
Bank of Brazil on the
defensive, because of
the damage caused to the
economy of this country
by a currency that has
lost more than 30
percent of its value
against the dollar in
the past two months. |
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