Globalização em perspectiva comparada Modulo 1: terceira aula

Modulo 1: Terceira Aula Pontos principais de ontem O tema de hoje: analise estrural do modelo WC no contexto dArgentina e na luz da crise financeira O caso Argentina e as teorias e conceitos de direito, financas, e o desenvolvimento –Macro-economic and policy perspectives –Comparative legal and institutional perspective Conclusoes

Os Pontos Principais de ontem A variedade historica das formas principais da organizacao e integracao do mercado financeiro O papel das formas heterodoxas nas experiencias do desenvolvimento tanto no seculo 19 quanto no seculo 20

Os Pontos Principais de ontem (cont´d) As funcoes das formas heterodoxos nessas experiencias do desenvolvimento financeiro e economico –Elevar o nivel de poupanca interna –Mobilizar os recursos para investimento produtivo (incluindo a tecnologia) –Estabilizar a economia nacional –Proteger a capacidade do governo de exercer as funcoes basicas: coordinacao da atividade economica; acelerar o crescimento; proteger o pais das crises financeiras....

Os Pontos Principais de ontem (cont´d) Uma iniciativa deliberada As vantagens do modelo? As criticas do modelo –Falta da flexibilidade –Impedimento ao livre aceso a economia global –Abuso do poder (potencial) –A forte presenca do estado na organizacao e desenvolvimento dos mercados financeiras

Os Pontos Principais de ontem (cont´d) Significado deste exemplo no contexto da discusao de hoje –Partindo dos pontos semelhantes, a Asia oriental e o Argentina desenvolvia modelos financeiros bem diferentes. –Qual e a relacao entre as formas diferentes e os resultados diferentes? –Como se explica essas trajetorias tao distintas? –Sera que o Argentina podia ter seguido o modelo financeiro dAsia oriental?

O tema de hoje: Analise estrutural do modelo WC Um caso exemplar: Argentina Vamos voltar a discutir o modelo dominante no mundo hoje, i.e. o modelo de WC Ate agora, a nossa conversa tem sido bastante abstrata Vamos tentar agora faze-la mais concreta

Argentina e o modelo WC: um estudo de caso Fatos interpretados

Global Markets Global Local Global Architecture Local Architecture Domestic Political Institutions Domestic Fin Institutions Savings/Reserves Real Economy Civil Society Central Bank Politics Values/Ideals/Conceptions Alternative models of Institutional reform IMF US Government Specific policies, Arrangements & Transactions

Argentina e o modelo WC: um estudo de caso Three part approach –Legal and institutional background: Argentine program of market-oriented reform and globalization during the decade of the 1990s –Key macro-economic and financial developments and concerns –Alternative approaches to sovereign debt management and restructuring, within a given framework of policies, arrangements and approaches to reform

Argentine program of market-oriented reform Basic approach: deep integration with global financial markets – orthodox WC approach Key policies and arrangements – global markets –Convertibility regime: Argentina peso pegged to the dollar and freely convertible into USD on a 1:1 basis –Full capital account liberalization –Removal of restrictions on foreign investment: loan capital, portfolio investment, FDI –Close cooperation with global markets and IFIs

Key policies and arrangements – local markets Orthodox privatization and liberalization of domestic markets and intermediaries Facilitation of access to global markets and foreign investment in local markets –E.g. dual currency issues in both local and global markets; foreign currency deposits in local banking system Acceptance of existing levels of domestic savings, FX reserves, and financial intermediation

Key policies and arrangements – local markets Relation of government to financial system –Monetary, fiscal and exchange rate policy constrained by currency board and convertibility regime –Limited ability to mobilize domestic savings or channel savings to productive investment –Increasingly dependent on access to financial markets for financing of government deficits and as a condition of macro-economic stability

Global Markets Global Local Global Architecture Local Architecture Domestic Political Institutions Domestic Fin Institutions Savings/Reserves Real Economy Civil Society Central Bank Politics Values/Ideals/Conceptions Alternative models of Institutional reform IMF US Government Argentine Program Of deep financial Integration Currency Bd Convertibility Regime B/P Current/Capital Account

Globalization Trilemma Deep Economic Integration = Free global markets Nation StateDemocratic Politics Golden Straightjacket i.e. WC BW compromise Global federalism Key: Dani Rodrik Revised D. Rodrik

Key macro-economic and financial developments and concerns Foreign investment led boom in the first part of the 1990s (portfolio capital and FDI/privatization) Slow-down in growth and financial development in the period following the Tequila crisis –Immediate impact of Tequila crisis: economic contraction and partial financial collapse –Deteriorating macro-economic and financial situation –Continuing exposure to global shocks: Asian financial crisis; Brazil devaluation –Increasingly fragile relations between Argentina and global financial markets

Global Markets Global Local Global Architecture Local Architecture Domestic Political Institutions Domestic Fin Institutions Savings/Reserves Real Economy Civil Society Central Bank Politics Values/Ideals/Conceptions Alternative models of Institutional reform IMF US Government Phase 1 Phase 2

Alternative approaches to sovereign debt management and restructuring: Argentine experience of the 1990s Sovereign debt management and restructuring – pre-crisis period –Global and domestic debt issues during the decade of the 1990s –Official financing programs and support –Voluntary restructurings Sovereign debt management and restructuring – post-crisis period –Unilateral restructuring of internal and external debt –Collapse of convertibility regime –Emergency banking and currency measures

Global Markets Global Local Global Architecture Local Architecture Domestic Political Institutions Domestic Fin Institutions Savings/Reserves Real Economy Civil Society Central Bank Politics Values/Ideals/Conceptions Alternative models of Institutional reform IMF US Government

Global Markets Global Local Global Architecture Local Architecture Domestic Political Institutions Domestic Fin Institutions Savings/Reserves Real Economy Civil Society Central Bank Politics Values/Ideals/Conceptions Alternative models of Institutional reform IMF US Government Sov default Collapse of Convertibility And 1:1 regime Emergency Banking And cap controls Reserves + Savings + Banking, Fin, econ collapse Increase in poverty, inequality Insecurity all around Domestic political instability

Rival views: macro-economic and policy perspectives IMF/Cavallo –Orthodox strategy is correct; political will is lacking Feldstein –Series of basic policy mistakes, orthodox brand –Willing to concede appropriateness of some heterodox policies – i.e. Chilean-style capital controls; build-up of domestic reserves, domestic sources of debt, domestic financial system Gelpern –Inadequacy of traditional legal remedies applied to a sovereign borrower

Combination of macro-economic and policy explanations Summary of key concerns Underlying legal and institutional assumptions Criticism of all these views –Failure to address key structural obstacles and constraints –Or to consider how a change in the underlying legal and institutional arrangements might contribute to a relaxation of these constraints

Contribution of comparative legal and institutional perspective Structural diagnosis: key problems and constraints Legal and institutional factors underlying these constraints Criticism of conventional WC approach to financial reform, as applied in the context of Argentina

Os proximos passos na analise estrutural Alternative approaches to financial crisis resolution and restructuring Alternative approaches to the design and development of emerging market financial institutions

Concluding comments and observations Nature and contingency of Argentine approach to market-oriented reform Supported by leading views of appropriate policy and best practice legal and institutional arrangements Basic premise of the whole approach: integration in itself, in accordance with existing rules of the game, creates the conditions for self-sustaining growth, economic development, political autonomy and collective self-government

Concluding comments and observations (contd) So what happened in Argentina? Two possible explanations Conventional view – Argentina couldnt, wouldnt play by the rules –IMF/Cavallo: policy is correct; enforcement is lacking –Feldstein: standard policy prescriptions too rigid; external imposition of alleged best practice reform politically illegitimate and econ/fin self-defeating; creates the wrong incentives –Economist/Gelpern piece: absence of appropriate legal and institutional framework for supporting creditor rights; sovereign unconstrained by rules of financial contracting

Concluding comments and observations (contd) Alternative view, suggested by Velasco and Argentine experience itself Basic problem – new best practice approach to economic reform and integration (i.e. o modelo de WC) may be at odds with the political and financial pre-conditions of productive investment, democratic self-government and growth

Global Markets Global Local Global Architecture Local Architecture Domestic Political Institutions Domestic Fin Institutions Savings/Reserves Real Economy Civil Society Central Bank Politics Values/Ideals/Conceptions Alternative models of Institutional reform IMF US Government Specific policies, Arrangements & Transactions

Concluding comments and observations (contd) Consider again the key areas in the framework slide; and the kinds of arrangements needed to make these areas work Little in the conventional wisdom, or in the policies based on this wisdom, address these concerns; or create the kinds of arrangements needed to address these concerns. Net result: search in the countries themselves for an alternative approach