Leslie Elliott Armijo



Alternatives for the Americas:

Regional Finance in the Foreign Policies of

the United States, Venezuela, and Brazil

Leslie Elliott Armijo

Visiting Scholar, Mark O. Hatfield School of Government, Portland State University

Leslie.armijo@cal.berkeley.edu

Draft of October 31, 2010 – Please contact author for latest version.

Paper presented at Annual Congress of the Latin American Studies Association, Toronto, Canada, Oct 6-9, 2010

Abstract

The paper characterizes three competing financial visions for the Western Hemisphere in the early twenty-first century, as expressed through the explicit and implicit foreign economic policies of three would-be leading states. The United States favors market-based and hemisphere-wide integration. If realized, the U.S.’ financial project would promote open regionalism in the economic sphere but without close political collaboration or increased unity of peoples. Venezuela’s ambitious plans for a redistributive and powerful New Regional Financial Architecture (NRFA) encompass all of Latin America and the Caribbean, but exclude the U.S. and Canada. Venezuelan preferences are for closed regionalism with close political and social ties among the participating countries. Meanwhile, Brazil’s preferences, like those of the U.S., are for market-based financial integration within a framework of open regionalism, though focused within South America rather than the entire hemisphere. At the same time, and like the Venezuelan vision, Brazil’s regional financial project foresees a substantial on-going role for the state. Moreover, it is as much a project for the creation of closer future political and social links within the continent as it is for greater economic integration.

Alternatives for the Americas:

Regional Finance in the Foreign Policies of

the United States, Venezuela, and Brazil

Which governments, and their supportive interest groups, have the most compelling regional financial projects for Western Hemisphere development? What are the characteristics, and the political contexts, of alternative contemporary visions for a regional financial architecture? Finally, what role do such alternative financial visions play in the overall foreign policy goals of key states in the Western Hemisphere? A “regional financial project” as defined in this paper may--but does not necessarily--mean the creation of formal multilateral institutions to provide credit, currency swap lines, macroeconomic coordination, or collaborative design of common bank or stock market regulatory standards. Rather, a regional finance as a subject for foreign policy implies only that the governments of interest have reasonably clear preferences for how they would like the financial architectures of neighboring states, and of the region as a whole, to look.

We explore three regional financial visions. The United States government hopes to make the Western Hemisphere a safe, predictable, and profitable venue for its multinational banks to expand abroad. Venezuela’s President Hugo Chávez dreams of ending the ability of the International Monetary Fund, World Bank, and Inter-American Development Bank to impose policy conditionality on Latin American governments—and would like to do this without having to rely for financing on private capital markets either. The Brazilian authorities are keen to showcase to their neighbors their home country’s example of apparently successful collaboration between private financial institutions and strong public sector banks in order to fortify their country’s new-found recognition as a major global as well as regional player. Leaders in each of these three countries see clear benefits in proselytizing their neighbors and getting them to enact national financial regulatory agendas similar to the missionary state’s own financial architectures.

This paper forms part of a larger book-length study, co-authored with Sybil Rhodes, and on the basis of a framework earlier developed in collaboration with Christine A. Gustafson, on the policy history of three competing versions of Western Hemispheric regionalism, each vision promoted by a would-be regional leading state: the United States, Venezuela, and Brazil.[1] Advocates of each of the three regional visions have made particular efforts to recruit allies among the South American nations, who may be conceived of as the hemispheric “swing states,” empowered to cast the deciding votes among the alternative projects. The present paper is one of four issue-focused public policy case studies, covering hemispheric cooperation and competition in energy, finance, immigration, and national security. Below we examine some of the reasons that national and hemispheric financial architectures have become an important topic in debates among alternative regionalisms.

The paper begins with a brief overview of the three competing regional integration projects in the Americas. Section two lays out our comparative methodology, defining the components of a leader state’s regional financial project and proposing a continuum for assessing the ways in which regional financial cooperation contributes to overall economic integration. The paper’s third section first summarizes the progress of world financial globalization (that is, international financial integration) since 1990. It then briefly assesses the current degree of global and intra-regional financial integration in Latin America, the main lines of national financial architectures in nine key states in the hemisphere, and these states’ systemic financial significance. Sections four through six describe the hemispheric financial policy preferences and actions of the U.S., Venezuela, and Brazil, respectively. A seventh section compares the competing regional financial projects in terms of the analytical framework proposed in section two, while the paper’s conclusions evaluate the ways in which these alternative financial regionalisms do or don’t push forward the larger agendas of the three competing regional projects within the Western Hemisphere.

I. The larger research project: Alternative regionalisms in the Americas

Three countries in the Western Hemisphere—the United States, Venezuela, and Brazil--have during the past ten to twenty years made clear their governments’ goals of leading or provoking a transformation of political or economic links in the region, resulting in new ties that are in some fashion closer or more interdependent. One obvious difference among three alternative visions lies in their geographic scope, and another in the broad lines of economic ideology pursued.

The policy initiatives of the United States seem intended, wherever possible, to promote hemispheric integration around pro-market and business-friendly regulatory frameworks and cross-border investments. Even under presidents or legislators from the Democratic Party, the U.S.’ vision is essentially neoliberal. It represents a form of economic ideology known as open regionalism, which means that market ties within the region are encouraged, but without overt discrimination against extra-regional firms or countries, whether via trade barriers, capital controls, or other preferences for local or regional capital. In the Western Hemisphere the U.S. open regionalism is universalistic in rhetoric, though less so in practice, Cuba having been steadfastly excluded since 1962, although almost no country but the U.S. today favors this exclusion. The U.S.’ major allies have been in North and Central America, especially the members of the North American Free Trade Agreement (NAFTA), which came into force in early 1994, and most of the Spanish-speaking Central American and Caribbean states, prominently excepting Cuba and Nicaragua.[2] The major foreign thorns in the side of the U.S. foreign policy establishment pursuing this vision have been Venezuela and Brazil, each of which has an alternative program for regional political and economic cooperation.

Venezuelan policies since the election of President Hugo Chávez in 1998 have favored construction of a Latin American and circum-Caribbean hemispheric grouping of mutually-supportive and politically left-leaning states.[3] The vision, institutionalized with the creation of the Bolivarian Alliance for the Americas (ALBA) in 2004, is explicitly and robustly directed toward discrediting U.S. and Canada capitalist economic dominance in the hemisphere, and constructing a Latin and Caribbean alternative to North American dominance. “Bolivarian” regionalism--after Simón Bolívar, hero of South American wars of independence—emphasizes popular sovereignty, collective (state) ownership of natural resource wealth and public utilities, and regional mutual aid. Core members of ALBA include Venezuela, Cuba, Bolivia, Ecuador, Nicaragua, and several small Anglophone Caribbean states. The largest obstacle to achieving Bolivarian cooperation has been the unwavering disinterest of several of South America’s larger countries: Colombia, Chile, and Peru. Argentina and Brazil, on the other hand, as well as smaller South American and Caribbean countries, have been willing to discuss most of the Bolivarian schemes and to join several.

The Brazilian vision of regional integration builds on the Common Market of the South (Mercosur), established in 1991 with Argentina, Uruguay, and Paraguay. Since 2000, Brazilian leaders have been working with the nations of the Andean Community (CAN) on regional cooperation throughout South America, to which end the continent’s presidents and prime ministers created the Union of South American Nations (Unasur) in 2004. Brazil’s regional foreign policy preferences manage to appear moderate and even modest much of the time, mainly due to the implicit comparison with the alternative regional organization schemes being promoted by the United States and Venezuela. Although Brazil willingly has joined the hemispheric and Latin/Caribbean cooperative bodies being promoted by the U.S. and Venezuela, respectively, its focus has been on the South American continent. Brazil’s national economic ideology is clearly pro-capitalist, yet unaplogetic about the need for state planning and public ownership and promotion of priority economic sectors. Within South America, Brazil tries to act as a bridge between left and right.

Table 1.

The ideologies and scope of alternative regionalisms in the Americas

| |Economic ideology |Scope |Key partners |Problem countries |

|United States |Neoliberal, open regionalism|Western Hemisphere |Canada |Brazil |

| | | |Mexico |Venezuela |

|Venezuela |Popular |Latin America & Caribbean |Cuba |Colombia |

| |Socialism | |Bolivia |Peru |

| | | |Ecuador |Chile |

|Brazil |Capitalist developmentalism |South America (sometimes |Argentina |None? |

| | |Latin America) | | |

II. The analytical framework: How to compare regional financial projects

In this paper, we want to consider what each vision of Western Hemisphere financial architecture, if implemented as desired by policymakers in the U.S., Venezuela, or Brazil, implies for regional integration more generally. To this end, we propose a fivefold categorization of types of regional integration, moving from the most market-oriented to the most state-directed. These five categories, shown in Table 2, provide a theoretical framework for our larger study on competing regional integration projects of which this paper’s consideration of regional financial projects forms a part.

Table 2.

Varieties of regional integration, from market-based to most state-directed

|Deep private & |Voluntary |Regular multilateral |Formal commitments to |Exclusive regionalism: |

|market-based integration|regulatory emulation & |consulation |foreswear unilateralism |collective barriers |

| |convergence | | |against rest of world |

At one end of the continuum we have deep integration of private markets or social spaces within the region. In the non-financial sphere this type of integration implies many private, transnational links among individuals and organizations within the region, including tourism, cultural ties, trade, and cross-border collaboration by non-governmental organizations, political parties, or capitalist firms.[4] To some extent governments may intentionally shape their national regulatory frameworks to generate incentives to individuals and organizations to choose to forge transnational links. However, governments play no role in directly urging their citizens, firms, or groups to move abroad. In the specifically financial sphere this type of integration implies rising regional financial internationalization, or an increasing share of bilateral cross-border links among countries within the region within the total financial assets of regional states. Although such financial internationalization is driven mostly by the decentralized and uncoordinated investment decisions by private actors, the national financial policy framework provides most of the regulatory structure of tax, interest rate, legal and other environmental considerations that structure incentives to private actors and firms. Behind private, voluntary market decisions therefore lies a regulatory framework designed by public policy.

A second form of regional integration is voluntary regulatory emulation and convergence among countries within the region. In the non-financial sphere this would refer to one country copying from another the key institutional characteristics organizing national social, economic, or political life within a public policy arena. The model country may offer technical assistance and expert advice to the converging country, but neither coercion nor formal treaty commitments are involved, and the vast majority of the contacts will be “transnational,” meaning between private parties, not “multinational,” referring to contacts between national governments. Application to the financial issue arena means that national financial rules--governing such topics and sectors as banking, equity and corporate debt markets, trading in public debt securities, and the rights and privileges of foreign portfolio and direct investors—within the countries of a geographic region will come to resemble one another. Emulation may occur either because the country altering (“reforming”) its previous financial regulatory framework admires the results achieved by the dominant country in terms of financial deepening or economic growth. Alternatively, regulatory emulation may reflect implicit economic or political coercion of the smaller or weaker country by its dominant neighbor. For example, regulatory emulation may be a condition of bilateral foreign assistance, or even of loans from international financial institutions (IFIs) on whose governing boards the regional hegemon wields a controlling vote.

The third variety of regional economic integration is institutionalized multilateral policy consultation, which may include informal mutual policy adjustment or even explicit policy collaboration on some issues. Sometimes a new, common regulatory framework is in the process of being negotiatied among the countries within a region. However, participating countries have not formally yielded national decisionmaking authority, either to a supranational authority or via formal treaty commitments that limit future policy space. In the financial realm, this would imply regular, albeit not necessarily formally-specified, meetings of high-level technical personnel such as finance ministers, central bank presidents, and directors or regulators of the stock and securities exchanges from countries within the region. These meetings may be for the purpose of macroeconomic surveillance or policy coordination, as in the case of an international financial crisis, or in order to discuss creation of a new regional financial process or institution, whether a regional development bank, regional currency, or an emergency currency swap facility. These initiatives are not necessarily aimed at excluding states outside the region, nor to they preclude member states from participation in extra-regional financial governance.

Our fourth category of regional integration is formal commitments to foreswear unilateral policymaking in a portion of an important public policy arena. Such commitments may come in the form of an agreement to accept supranational decisionmaking or dispute arbitration, as when countries agree to be bound by decisions of the International Court of Justice or the World Trade Organization’s Dispute Resolution Mechanism. Or they may simply be embodied in a country’s treaty commitments, as when countries adhere to the nuclear Non-Proliferation Treaty, which proscribes the development of nuclear weapons at any time in the future. Similarly, in the financial sphere, the type of regional integration has at least two very different expressions. On the one hand, it may imply creation of supranational financial institutions, such as regional banks, securities exchanges, currency swap arrangements, or a common currency. On the other hand, countries can precommit to yield up national financial policy space by promising, via formal treaty commitments, not to implement controls on capital inflows, credit subsidies for national firms, or national preferences in being chosen to implement government banking business.

The fifth and final variety of regional integration is exclusive regionalism, meaning a regionalism that tends not only to solidify policy consultation and joint institution-building among the member states, but does so in a way that tends to close off members from the outside world. For example, much of the debate in the economics literature about regional trade arrangements turns on the question of whether a given trade agreement will tend to promote its members integration with the larger world (“open regionalism”) or to erect new tariff or other barriers (“closed regionalism”). We note that exclusive regionalism is is not truly a separate category, but instead is a politically and economically important subset of our fourth category, foreswearing unilateral policymaking. We include it in our categorization because it constitutes a politically-important endpoint to our continuum of market-based to state-directed regional integration. Exclusive financial regionalism describes a financial project that explicitly is aimed at strengthening financial links within the region at the expense of those with the rest of the world. For example, an exclusive regional financial vision might promote the creation of a regional development bank that was intended to free member states from the necessity of borrowing from the established international financial institutions such as the World Bank or International Monetary Fund. Or a leading state might offer technical assistance in setting up capital controls or implementing financial reforms enabling member states to better control private national banks and foreign investors. The common thread is the uniting of regional member-states against an external environment perceived as perilous.

Studying regional financial projects presents a second methodological challenge: what do we mean by “regional finance”? As with other global public policy challenges--including eroding biodiversity, fast-spreading pandemics, and climate change—it is understandable that national leaders wish to influence the public policy decisions of their geographic neighbors as one means of reducing the uncertainties and threats to themselves. National leaders with the desire to shape the financial or monetary decisions of their counterparts in neighboring countries are pursuing a regional financial project, which we define as a set of foreign policy preferences held by key senior national leaders (elected and appointed officials) for particular money, credit, investment, or financial regulatory conditions that the leaders would like to see adopted (or retained) by neighboring states. A regional financial project, therefore, may but does not necessarily imply a vision of more regionally-integrated finance.

We will compare countries’ financial policy frameworks, and the competing foreign policy projects for promoting regional finance in the Americas, along three financial dimensions, summarized in Table 3. First, we look at patterns of domestic financial regulation and institutions, and at preferences of would-be leader states for influencing these patterns in their regional neighbors. A state with a regional financial project typically seeks, at a minimum, regulatory convergence between its neighbors and itself, although leader states may pursue this goal with greater or lesser enthusiasm and resources. Regulatory convergence means that national financial rules--governing such topics and sectors as banking, equity and corporate debt markets, trading in public debt securities, and the rights and privileges of foreign portfolio and direct investors—within the countries of a geographic region come to resemble one another.

Table 3.

Describing national financial profiles: Main categories

|Domestic financial regulation |Architecture of international financial |Participation in international financial |

| |insertion |governance |

|* Monetary authorities |* Capital controls |* Global and regional multilateral |

|* Private banks & financial firms |* Foreign exchange regimes |institutions |

|* Capital markets |* Foreign debt rescheduling |* Transnational public-private bodies |

|* Role of state banks | | |

A second dimension of interest is a state’s architecture of international financial insertion, and the preferences of would-be regional leaders for shaping their neighbors’ patterns of regional and global financial insertion. The architecture of international financial insertion refers to the set of national rules governing cross-border money, credit, and investment flows. Included in this category would be regulations and practices governing capital controls (such as tax treatment and licensing of foreign investment or foreign exchange, sectoral or performance requirements differentially-applied to foreign as compared to national capital), and all aspects of exchange rate management, from the formal choice of an exchange rate regime to the type of daily management exercises engaged in by the central bank or other responsible authority. A state’s rules and practices for renegotiation of its foreign debts also provide a piece of this architecture.

The third aspect of a country’s national financial profile, and thus the third component implicit in a would-be leader’s regional financial vision is a country’s participation in multilateral financial governance. This category encompasses participation in initiatives aimed toward intra-regional financial governance, beginning with regular high-level consultative meetings of finance ministers, central bank presidents, or directors or regulators of the stock and securities exchanges from countries within the region. These meetings may be for the purpose of macroeconomic surveillance or policy coordination, as in the case of an international financial crisis, or in order to create or implement a new regional financial process or institution, whether a regional development bank, regional currency, or an emergency currency swap facility. The category also includes participation in extra-regional financial governance, as in the activities of international organizations such as the financial Group of Twenty (G20), the World Bank, or International Monetary Fund.

This section has offered two analytical classification schemes, one for varieties of regional integration and the other for the main components of a country’s overall national financial model, both which we apply below. The paper’s next section provides a factual baseline for the subsequent discussion of competing regional financial visions.

III. Situating the Western Hemisphere in global finance

Prior to comparing the ways in which senior policymakers in the U.S., Venezuela, and Brazil would like to see hemispheric financial ties evolve, we need to situate the Western Hemisphere in the larger space occupied by global financial markets and architectures. Four subsections address, in turn, the extent of international financial integration in the larger world, the degree to which Latin America is financially-integrated with global financial markets or within the region, the main characteristics of the current national financial architectures of key countries in the hemisphere, and the systemic financial importance of these same major countries.

The world financial context

Financial globalization is a reality. Since about 1990, most measures of the importance of money, credit, and securities in the global economy have registered notable increases, as the world has become more tied together by cross-border financial flows than ever before. Three tables summarize these trends. Table 4 shows that the financial sector has become a larger part of the collective global economy as the ratio of world financial assets to world gross national product (GDP) has increased. This is known as financial deepening. To many or most economists financial deepening implies expanded opportunities for the financing of potentially-profitable business enterprises, bringing jobs and growth.[5] Political scientists meanwhile note that, ceteris paribus, a larger financial sector may mean greater influence for private financial interests in the national political process of a democracy, leading them to worry about data showing that, for example, the share of financial services in the U.S. economy rose from about 3 percent in 1950 to over 8 percent in 2000, a point we return to below.[6] Table 4 reports that the ratio of the stock of total financial assets held in each country’s home market to total global production (world GDP) has risen from about 225 in 1990 to over 300 percent at the end of the first decade of the twenty-first century, for an increase of over 30 percent.[7]

Table 4.

World financial deepening

| |1990 |1995 |2000 |2005 |2008 |

|World GDP, |21.2 |28.4 |37.0 |48.6 |60.7 |

|US$ trillion | | | | | |

|Financial assets as % of world |227 |246 |303 |320 |293 |

|GDP* | | | | | |

|World financial assets, |48.1 |69.9 |112.1 |155.5 |177.9 |

|US$ trillion | | | | | |

Note: “Financial assets” refers to the sum of assets reported in the domestic economy of each country, and includes equity, private debt securities, public debt securities, and bank deposits. Source: McKinsey Global Institute 2009a: 9.

While Table 4 measures the share of all financial assets, Table 5 focuses only on financial assets held across national borders: financial internationalization or “globalization.” The table actually underestimates the phenonemon, as it does not include all foreign financial assets held by private individuals and firms, but only those easiest to track comparatively: holdings by institutional investors of foreign equity (shares) and short and long-term debt securities. Table 5 shows an increase of over 150 percent between 1990 and 2008 in the share of such international financial assets relative to the size of the world economy, as measured by GDP.

Table 5.

World financial internationalization

| |1997 |2001 |2005 |2007 |2008 |

|International assets|19.5 |39.8 |57.0 |70.5 |50.2 |

|as % world GDP | | | | | |

Note: International financial assets = private portfolio investments in foreign equity, and long and short-term foreign debt securities, as reported by creditor (= investor) countries. Sources: For portfolio assets, International Monetary Fund, Coordinated Portfolio Investment Survey online database online, accessed at in September 2010. For world gross domestic product (GDP): International Monetary Fund, World Economic Outlook database online, also accessed September 2010.

Table 6 captures a third aspect of the rise of finance in the world economy: the increased speed with which money leaps across national borders and into and out of countries’ currencies. Average daily foreign exchange turnover in 1992 was $820 billion, already an exponential increase over the quantities normal in the 1970s or even 1980s. By early 2010 the daily sum was nearly $4 trillion, a 300 percent increase in two decades.

Table 6.

International financial velocity

| |1992 |1995 |

| |Inward |Outward |Overall | |

|No. America | | | | |

|Canada |.08 |.17 |.00 |Free float and inflation targeting |

|Mexico |.25 |.54 |.40 |Free float and inflation targeting |

|U.S. |.00 |.26 |.13 |Free float and multiple targets for monetary |

| | | | |policy |

|So. America | | | | |

|Argentina |.40 |.80 |.60 |Fixed peg, with exchange rate anchor to US$ and |

| | | | |quantitative monetary targets |

|Bolivia |.17 |.00 |.08 |Crawling peg, with exchange rate anchor to US$ |

|Brazil |.36 |.58 |.50 |Free float and inflation targeting |

|Chile |.43 |.29 |.36 |Free float and inflation targeting |

|Colombia |… |.. |.. |Free float and inflation targeting |

|Ecuador |.15 |.11 |.22 |Fully dollarized |

|Peru |.00 |.00 |.00 |Free float and inflation targeting |

|Venezuela |.17 |.00 |.08 |Fixed peg with exchange rate anchor to US$ |

Notes: Capital controls are de jure; exchange rate regimes are de facto.

Sources: Capital controls from Schindler 2009. Exchange rate regimes from IMF 2009. , “De Facto Classification of Exchange Rate Arrangements and Monetary Arrangements,” February 25, 2009. Available at:

The countries with the weaker domestic financial systems, as estimated in Table 5 above, attempt to control exchange rate volatility by fixing their currencies. Three of these countries are in ALBA’s anti-capitalist alliance, while Argentina’s presidents since 2003 also have leaned left. Ecuador has used the U.S. dollar as its national currency since 2000. Argentina and Venezuela fix their currencies to the dollar, and Bolivia employs a crawling peg. The remaining Latin American countries in the table have relatively stronger domestic financial systems and have followed the U.S. and Canada in adopting freely floating exchange rates with inflation targeting monetary regimes. Nonetheless, considerable de facto intervention occurs. For example, a study reported in the Economist in early October 2010 concluded that Peru, ostensibly with a freely-floating currency, was the most aggressive intervener in Latin America in comparison to the size of its economy.[17]

The systemic financial importance of key countries in the hemisphere

We have now compared nine key states in terms of the main characteristics of their domestic and international financial architectures. We now turn to the question of these countries’ systemic financial importance, or lack thereof. Since the purpose of this paper is to describe and analyze the regional financial projects of three would-be leader states in the hemisphere, it may be useful to have a sense of what kind of financial capabilities and presence they have on the global and regional stages.

One measure of financial “power” is the ability of a country to attract foreign direct investment (FDI). Table 9 offers a view of the evolution over time of key Latin American countries as foreign investment destinations. Note that the figures report absolute national shares of total inward foreign direct investment (FDI) flows to the region, not shares relative to each country’s GDP. That is, we aren’t here interested in comparing the relative attractiveness of countries as investment destinations per se, but rather countries’ systemic importance within the region. The table shows that, as expected, Brazil and Mexico, Latin America’s two largest economies, receive the largest FDI inflows. The rest of South America, taken together, receives about as much as Brazil, while all of Central America and the Caribbean receives less than 15 percent of total inflows. The trend that jumps out, however, is the sharp decline in Mexico’s share of inward FDI during the first decade of the twenty-first century. Mexico has had almost the lowest growth in the region for this entire period. Moreover, due to its close trade and other economic ties with the still-struggling U.S., Mexico is the major Latin American country expected to remain economically depressed for the longest in the aftermath of the recent financial crisis.

Table 9.

Country shares in total inward foreign direct investment flows to Latin America and the Caribbean

(percent, except as noted)

| |2000-5 |2006-8 |2009 |

|Mexico |34 |22 |15 |

|Central America & Caribbean |9 |13 |14 |

|Brazil |29 |31 |34 |

|Other South America |26 |34 |37 |

|Total, annual average, $ bns |66.37 |106.19 |76.68 |

Source: ECLAC 2010, p. 30.

As we move toward the more political sections of this paper, we also construct a composite measure of the apparent global systemic financial importance of key countries in the hemisphere. The goal is to provide an initial assessment of which countries might be in a position to exert financial influence over their neighbors. Table 10 presents comparative data on a smorgasboard of dimensions, each of which plausibly is related to systemic financial significance. The national share in total global production (GDP), shown in Table 10’s first column, arguably remains the most important single dimension. Here the U.S. clearly dominates. In fact the U.S.’ enormous and productive economy, still the world’s largest (unless the European Union is considered as a single economic unit) is intimately related to its extraordinary privileges as issuer of the world’s major reserve currency, a dimension not included in our table.[18] The next column reports national shares as of end 2008 in total world financial assets. The U.S. domestic market contains about a third of all financial assets worldwide, a figure that would be even higher if we had been able to include figures on more exotic and difficult to document financial assets along with the basic assets (bank deposits, corporate stocks, corporate debt securities, and public debt securities) included in the international figures. Canadians own just over 3 percent, Brazilians just over 2 percent, and Mexicans somewhat under 1 percent of worldwide financial assets, while no other country in the hemisphere owns enough to register at a global level. For international financial assets (foreign assets owned by residents of these nine Western Hemisphere countries) the U.S. share is about a fifth worldwide. Other countries in the hemisphere to date have been relatively unimportant to the rest of the world as foreign investors.[19]

Table 10.

Systemic financial importance of major countries of the Americas, 2008

(percent)

| |Share |Share of world |Share of globalized |Share of world forex |Share of new equity |

| |world GDP, PPP |financial assets |financial assets |reserves |capital |

|United States |Yes |TNCs only |No |Yes |Sometimes |

|Venezuela |No |No |Yes |No |Yes |

|Brazil |Yes |Yes |No |Yes |Yes |

In Venezuela, the private financial sector is almost totally excluded from senior policy circles, serving instead as an object of demonization. Venezuelan banks are under siege from their government. Looking back to Table 7, we see that private stock exchanges and other capital markets, in most of the larger countries of the hemisphere a somewhat to a fairly significant source of business finance, in Venezuela barely exist. On the other hand, Venezuela’s President Chávez has been able to use national and regional financial policies, both real and merely hortatory, to build support among his mostly lower-class constituent base, and has advised his fellow presidents in Ecuador and Bolivia to do likewise. Venezuela’s foreign ministry is very involved in foreign financial policymaking. The government’s senior financial regulators and finance ministry officials are of course also consulted, yet aware of their low levels of independence from the political authorities.

For Brazil, Table 11 suggests that the profile of which domestic interests has input into foreign financial policies is more similar to that of the U.S. than Venezuela, with the difference that non-financial business interests have considerably wider access to senior financial policymakers.[72] For example, prior to government institutional reorganizations in the early 1990s, both trade and foreign financial policies were carried out by agencies subordinate to the Ministry of Industry and Commerce, which saw the exchange rate quite explicitly as a tool of trade promotion.[73] In Brazil, as in the other two countries, preferences about national financial regulatory policies, much less preferences about the financial policies of other countries, do not usually resonate with the general public, or even with the legislature. However, one aspect of international financial regulations—exchange rate policies—has become increasingly significant in Brazilian domestic politics since 2009. As in the U.S. worries over Brazil’s high exchange rate have began to acquire an increasingly high public profile.

Table 12, which compares the broad sweep of the foreign financial policy projects of each of the would-be regional leader countries, summarizes the essence of the paper’s research findings. We will summarize by columns, rather than by rows. With respect to domestic financial regulation, the U.S. would like to promote idealized U.S.-style arrangements throughout the hemisphere: an independent central bank, a competitive and agile private banking sector anchored by commercial banks but also populated by institutional investors and lenders, and deep securities markets for both corporate debt and equity. Venezuela’s current administration distrusts both private banks and those charged with implementing national monetary policy, but hasn’t yet found a means of freeing itself from the need for their services. It therefore hasn’t yet developed a positive foreign policy project for national financial regulation for export to the region. Brazil’s foreign policy project in domestic financial promotion in the continent (and other Southern destinations) is a source of considerable enthusiasm, with Brazil at or near the center of numerous transnational networks linking South American business school faculty, capital markets investors, exchanges, and regulators, and senior development bank officials. The substance of Brazil’s vision of financial development is quite similar to that of the U.S., with the important difference that the state is much more likely to be viewed as a valuable actor, particularly when subjected to democratically-imposed transparency and oversight. For example, in 2009 President Lula summarily fired the president of the publicly-owned Banco do Brasil (BB), one of the three largest banks in Latin America, on the grounds of failing to increase counter-cyclical lending sufficiently during the financial crisis. Meanwhile, finance minister Guido Mantega has been proud of the BNDES’ ability to do just that.[74]

With respect to the international financial architectures of neighboring states, the subject of Table 12’s second column, the U.S. seeks to have countries forswear the policy options of capital controls, barriers or limits to inward foreign portfolio and direct investment, although it has in very recent years made exceptions for barriers aimed at keeping out investments possibly linked to possible criminal activity. Since the wave of high-profile Japanese direct investments in the 1980s, the U.S.’s own legislation has become tougher on inward FDI, prohibited or limited in transportation, finance, media and other sectors deemed critical to national security, although such clauses typically are identified as market-barriers when imposed on U.S. firms from abroad. U.S. foreign financial policies strongly promote the sanctity of financial contracts, and decry unilateral debt default or rescheduling.

Table 12.

Regional financial themes and preferences: U.S., Venezuela, and Brazil

| |Domestic financial regulations |Architecture of international |Multilateral financial governance |

| | |financial insertion | |

|United States |* Prefer private to state-owned|* No capital or investment |* Continue technocratic, “best practices”|

| |banks |controls, except on |IFI management |

| |* Encourge deep capital (equity|money-laundering |* IFI conditionality is necessary |

| |& securities) markets |* Limited national security |* Prefers transnational & industry-based |

| |* Central banks should be de |exceptions (but only for U.S.?) |regulation |

| |jure independent |* Pre-commitment to neutral |* Democratization of global governance |

| |* Regulatory convergence to |international arbitration for FDI |exacts costs in efficiency & fairness |

| |U.S. example |or other disputes |* Only ad hoc & bilateral currency swap |

| | | |arrangements |

|Venezuela |* Private banks are a necessary|* International capital & |* IFIs are neoliberal servants of U.S. |

| |evil |investment controls are essential |and TNCs |

| |* Do not encourage capital |development tools |* Regional IFIs can break dependency & |

| |markets, havens for corrupt |* The state, as representative of |end unjust loan conditionality |

| |speculators |the people, sometimes may need to |* Need for new regional financial |

| |* Central banks should be |renegotiate w/ TNCs |architecture (NRFA) to retain scarce FX &|

| |politically subordinate | |credit resources |

|Brazil |* Both private & public banks |* Occasional capital or investment|* Democratized governance of existing |

| |have essential roles |controls are the legitimate |IFIs can fix what’s wrong |

| |* Encourage deep capital |prerogative of sovereign states |* Developing countries should participate|

| |(equity & securities) markets |* International financial |in world financial governance & |

| |* De facto central bank |contracts should be honored—but |transnational debates |

| |independence is sufficient |should not have formal treaty |* Support for new regional IFIs is good |

| | |status |politics |

| | | |* Lukewarm on regional swap or currency |

| | | |plans |

Venezuelan rhetoric and policies support maximum national policy space vis-à-vis foreign investors, posing investment conflicts as between the people and rapacious capitalists. President Chávez has encouraged his ALBA partners to take a similarly tough stance, although all of the ALBA countries find their options limited by skeptical global financial markets, whose funds they still need. The Brazilian government has vocally opposed yielding up financial policy instruments, such as the sovereign right impose taxes on hot money inflows or renegotiate financial contracts with foreigners in host country courts, arguing these points in multilateral fora such as trade negotiations. At the same time, Brazil is increasingly an investor (home) country for multinational firms, and plays the traditional diplomatic role of supporting its companies in their dealings abroad. The Brazilian government generally supports private financial property rights, but is reluctant to enshire such rights in sovereign treaties, having been in the position itself of declaring a unilateral debt moratorium in the not too distant past.[75]

Our final comparative category concerns the three would-be leader countries’ views about their neighbors’ participation in multilateral financial governance. The U.S. favors bilateral and temporary measures to respond to the spread of international banking and currency crises (“financial contagion”). Thus the U.S. Federal Reserve Bank in 2009 entered into a number of short-term emergency reserve swap arrangements, including with Brazil, Mexico, South Korea, and Argentina in 2009 for up to $15 billion and eighteen months each. The only institutionalized multilateral swap arrangements the U.S. supports are those through the IMF, where loans come with sharp economic conditions. The United States is willing to support incremental adjustment of quotas and votes to favor greater inclusion of developing countries in the international financial institutions such as the World Bank and IMF, since the countries of the EU are likely to lose relatively more from such an exercise than the US. But the U.S. remains suspicious of new institutions that it will not control. Intellectuals close to the Washington, D.C. policy establishment often focus on the costs—in reduced efficiency and effectiveness—likely to result from expanding developing country participation in critical global governance institutions, invoking images of stalemate, gridlock, and the selfishness and irresponsibility of unseasoned members.[76] In terms of regulatory cooperation for cross-border financial transactions, the U.S. government generally looks most favorably on voluntary and sector-specific regulation negotiated among small groups of cogniscenti—in this case financial firms themselves and national regulators, such as the International Organization of Securities Commissions (IOSCO) or International Accounting Standards Board (IASB)—rather than via a more open, public, and possibly conflictual process.

Venezuela has been the most active of the three aspiring regional leaders examined in promoting new forms of multilateral financial cooperation, putting the government’s not inconsiderable cachê around South America and among global social movements behind the effort to create a New Regional Financial Architecture (NRFA). ALBA has floated ambitious plans for new Latin American and Caribbean institutions including two development banks, a regional currency swap fund, and a regional currency all to be managed on humane and redistributive lines. Venezuela’s problem lies in locating and managing the funds necessary to such an effort.

Brazil’s principal preferences with respect to its neighbors’ attitudes toward multilteral financial governance are that voices outside the traditional G7 be heard more. That is, Brazilian policymakers have been willing to start new multilateral institutions—but also to work within existing institutions. Their quarrels with the World Bank, IDB, and IMF concern representation rather than deriving from a fundamentally-distinct economic ideology. In fact, Brazil has been lukewarm in its enthusiasm for new regional currency swap arrangements or establishment of a regional currency—perhaps due to reasonable fears that Brazil would have to be a primary funder for any such ambitious new project.

VIII. Conclusions: Financial projects and regional integration in the Americas

Our conclusions return to the larger project of which this paper forms a piece. Processes of financial integration and regionalization are occuring alongside those in other sectors, and what happens in finance will help shape the overall political economy of the Western Hemisphere. Our final comparative exercise in this paper examines the types of overall regional integration that the three regional financial projects of the United States, Venezuela, and Brazil seem designed to promote. It is important to note one difference between Table 2 above, which laid out diverse types of regional integration or cooperation as ideal-types, and Table 13 here, which locates the alternative actually-existing regional financial projects within this theoretical space. While Table 2 suggested a continuum, Table 13 instead proposes that complex and multi-dimensional national foreign policy projects such as those we have described may tend to promote multiple types of integration. As in the previous section, the discussion proceeds via columns.

Table 13.

Types of overall regional integration promoted by the competing financial visions of the United States, Venezuela, and Brazil

| |Deep private & |Voluntary |Regular multilateral|Formal commitments to |Exclusive |

| |market-based |regulatory emulation &|consulation? |foreswear unilateralism?|regionalism: |

| |integration? |convergence? | | |collective barriers |

| | | | | |against rest of |

| | | | | |world? |

|U.S. |Yes |Yes |No |Yes (FTAs) |No |

|Venezuela |No |Yes |Yes |Yes (NRFA) |Yes |

|Brazil |Yes |Yes |Yes |No |No |

We begin with the first column. The regional financial projects of both the United States and Brazilian governments intentionally promote further market-based financial internationalization—or the proliferation of cross-border, private, and uncoordinated financial ties--within the region. The United States was the main source of foreign loans, financial advice, and international investment in Latin America and the Caribbean from the 1930s through at least the end of the twentieth century, but is now losing this hegemony, with the sharpest losses in those countries that are most geographically distant. The U.S.’ most important contemporary financial goal in the hemisphere is to recoup those losses by pursuing expanded access to the domestic financial services markets in the developing countries of the hemisphere, most of which are growing at much faster rates than the U.S. Realization of Brazil’s regional financial project also would further decentralized, market-driven forms of regional integration. The strategy of Brazilian private banks is to separate off South America, or perhaps even the entire Latin American market, from U.S. dominance. Governments in both countries will tend to support their private banks, although the Brazilian government and its banks, unlike those in the U.S., thus far have been content to work within their neighbors’ existing national financial regulatory frameworks. With the advancement of either vision, further market integration is likely.

Table 13’s second column asks about voluntary regulatory emulation and convergence. All three of the would-be leader countries discussed here would like to transfer their domestic financial models—or at least an idealized model of them—to their neighbors. All three governments have funded studies, conferences, and even summits of heads of states to promote their visions of democratic control of credit and money. In fact, promoting a vision for voluntary emulation would seem to be implicit in the notion of having a regional financial vision.

The third column, inquiring into the multilateral consultative processes envisioned by each regional financial project, reveals divergence among the leader states. The U.S. emphatically is not promoting new initiatives in regional financial consultation or governance, having concluded that its condition as the sole global superpower and issuer of the world’s main reserve currency implies a sufficiently large difference of systemic financial importance as to make ostensibly equal consultation with even Brazil and Mexico unreasonable and impractical. As a practical matter, the 2008-09 U.S. and world financial crisis has obliged the U.S. and the other major advanced industrial democracies of the G7 to participate with some seriousness in the G20 large economies forum, and to include countries such as China, Brazil, Mexico, Argentina, South Korea, and Turkey in their discussions, an incremental but significant global power shift that U.S. policymakers already struggle with.[77] By this same logic, the U.S. has little interest in promoting hemispheric dollarization, as its leaders and diplomats would not like to have to fend off requests from its neighbors to, for example, elect Latin American regional representatives as governors to the Federal Reserve Bank. United States policymakers thus have seen it in their national interest to downplay regional consultation over monetary and financial policies—except when, as in the 2008-09 crisis, their hand has been forced.

In contrast, both Venezuela and Brazil see value in regular multilateral consultations, as for example via the meetings in 2010 of the refounded Rio Group (uniting all of Latin America and the Caribbean, but excluding the U.S. and Canada, as in the geographic vision of the “region” promoted by Venezuela) to share information on macroeconomic stimulus packages in the wake of the international financial crisis. Regular consultations among national financial and monetary policymakers already take place within Mercosur auspices, and both countries would be happy to see the newer UNASUR grouping promote similar consultations.

The table’s fourth column, which asks about each regional financial project’s formal commitments to forswear unilateralism, is perhaps the table’s most interesting. For the most part this paper has painted the financial visions of the U.S. and Venezuela as ideological opposites, with Brazilian economic ideology falling somewhere between the two. Here, and counterintuitively, we have placed the U.S. and Venezuela on one side of the fence, with Brazil taking the other position.

The United States’ stance on monetary and financial unilateralism in the hemisphere is quite subtle. As noted, the U.S. is not pursuing new fora dedicated to regional financial or macroeconomic collaboration or even serious consultation. How, then, can we suggest that the U.S.’s financial project tends to establish formal reductions in national autonomy in favor of some other decisionmaker, such as a multilateral institution? Our argument is that, in effect, the U.S. is seeking the same goal as Venezuela: pre-empting unilateral actions by its regional neighbors that the leader state might consider undesireable. The U.S.’ tactic is to get other countries to precommit via formal treaty obligations to refrain from certain financial behaviors--such as imposing capital controls or unilaterally declaring debt mortoria. In exchange for this explicit relinquishment of policy space, U.S.-partner countries get the plausible promise of increased foreign direct investment, especially from the U.S. This was the essential bargain underlying Mexican accession to the NAFTA in the early 1990s, and has been continued through various modalities since.[78]

Venezuela’s position is quite clear: the current government would like to see a new regional financial architecture established, presumably with Venezuela as the leading player. Although the Bolivarian ideology explicitly opposes loan conditionalities and other sanctions on sovereign states for non-compliance with international financial commitments, joining a regional currency or reserve fund presumably brings certain very difficult to avoid financial obligations to one’s fellow governments, inconsistent with unilateral decisionmaking. Brazil, in contrast, is interested at present in building multilateral consultative and political institutions, but seems not to care about locking in particular monetary or financial policies, or perhaps even strong commitments to make joint decisions, from its neighbors. The Brazilian foreign policy establishment has confidence in its private financial sector’s ability to compete effectively within the existing and semi-liberal financial regulatory architecture in the region.

Table 13’s final column inquires into the ideological and political tenor of the competing regional financial visions. Both the U.S. and the Brazilian regional financial projects are at base market-oriented and tending toward an “open regionalism” vision of integrating the Latin America with the larger world. That is, in the medium-run both promote financial globalization, although Brazil’s vision allows more room for safeguards and sand in the gears. In contrast, the Bolivarian vision promoted by Venezuela today represents exclusive regionalism: the putting up collective financial barriers against an external environment perceived as treacherous and, in the absence of such strong protections, impossible to control or regulate.

In closing, we sidestep the question of whose vision is more likely to prevail—or, more precisely, more likely to have some influence on real financial developments in the Americas. The one observation that seems certain is that the very fact of the existence of three competing financial projects per se appears most likely to promote Brazil’s vision, in that on several dimensions it represents a centrist or middle ground position between the U.S.’ preferences on its ideological right and those of Venezuela to the left.

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[1] See Gustafson and Armijo forthcoming 2011 and Armijo and Rhodes work in progress.

[2] On the politics of NAFTA see Fox 2004.

[3] Burges 2007.

[4] For a careful consideration of the implications of increasingly dense cross-border ties see Deutsch 1954 [2006].

[5] For example, Goldsmith 1969; Shaw 1973; Levine 1997; Demirguc-Kunt and Levine 2001.

[6] The previous high was just under 6 percent in 1930, after which the share of financial services fell sharply. See Philippon 2008, slide 2.

[7] The dip in global financial depth in 2008 shown in Table 4 is almost entirely accounted for by the crisis-related fall in equity prices, and is likely to be temporary.

[8] See Eichengreen 1999; Blecker 1999; Eatwell and Taylor 2001; Armijo, ed. 2002.

[9] Author’s calculations based on data in Institute of International Finance (IIF) 2010, pp. 17-24, accessed September 2010 at . GDP at purchasing power parity (PPP) figures from World Development Indicators, accessed August 2010 at , using the countries included in IIF regional aggregates.

[10] Stallings with Studart 2006 also makes an extended comparison of the LA7 with a similar group of emerging economies from East Asia. In their study, East Asia enters mainly as the better-performing region, and the authors wish to understand why. They question, inter alia, the oft-heard conclusions that private banks always outperform public ones, and that greater integration with global financial markets yields superior results.

[11] IIF 2010, p. 13.

[12] ECLAC 2010, pp. 58-9.

[13] Ibid., p. 62.

[14] Subsequent to the data reported in Table 7, the Venezuelan government increased its ownership of commercial banks through nationalizations in 2009 and 2010, and may now own as much as 30 percent of the banking system.

[15] The U.S. equity figures for 2008 reflect temporary losses due to the financial crisis, which spread to Latin America somewhat later. Yet the larger comparative point still holds.

[16] On the status of Argentina’s return to international capital markets, see IIF 2010, p. 22.

[17] “Flood barriers,” Economist, October 7, 2010, accessed at .

[18] See MGI 2009b for a discussion of the economic power and political influence accruing to the reserve currency country.

[19] Had we used international financial liabilities (the sum of one’s home country financial assets held by foreigners) Latin American countries would have appeared slightly more significant.

[20] Systemic banking importance from IMF 2010, p. 16.

[21] See Zysman 1983; Henning 1994.

[22] The formal requirement of these semi-annual sessions in which the Fed Chairman is grilled by the House Financial Services Committee [ck] expired in 2000, but the practice has continued.

[23] For the academic rationale, see, for example, La Porta, López-de-Silanes, and Shleifer 2002; Caprio et al. 2004.

[24] La Porta et al. 1989.

[25] On the proposed investment rules under the FTAA see Oxfam 2003.

[26] Gallagher 2010a; Ostry 2010.

[27] Biersteker 1993 offers a revealing set of debt-negotiation case studies.

[28] Gallagher 2010b summarizes the argument for considering sovereign debt defaults as a collective action problem, arguing in favor of establishing a new international agency to help manage restructuring. See also Blecker 1999; Eichengreen 1999; Eatwell and Taylor 2001.

[29] For example, Summers 2000.

[30] Porzecanski 2009.

[31] On the history of the G7 see Bergsten and Henning 1996. For the argument that the G20 remains ad hoc and insufficiently representative see Wade and Vestergaard 2010.

[32] Woo-Cummings 1999; Chang 2002, 2003; Gallagher 2005.

[33] The precipitating factor in Venezuela was Latin America’s “tequila” crisis, representing financial contagion from Mexico’s peso crisis of 1994-5. Brazil’s banking crisis resulted from the end of decades of extraordinary profits associated with Brazil’s chronic very high inflation. Stallings with Studart 2006:224-9.

[34] “Venezuela Seizes More Banks,” Latin Finance, January 20, 2010.

[35] Cancel 2009.

[36] McIlhinny 2007.

[37] Janicke 2010.

[38] Verify date.

[39] For example, Hart-Landsberg 2009.

[40] Artana 2010.

[41] Phillips 2009a, 2009b; Arruda 2008.

[42] Fritz and Metzger 2006; Camara-Neto and Vernengo 2009.

[43] Bank of the South, “Outcome of the Technical Workshop,” held in Quito, June 23-27, 2008. Available at:

[44] “Spearheading regional natural resource sovereignty—Banco del Sur,” June 14, 2010. Accessed October 2010 at:

[45] For background, see Fritz and Metzger 2006.

[46] Eichengreen 2010:5.

[47] Gnos, Monvoisin, and Ponsot 2009-10.

[48] Eichengreen 2006: PG.

[49] On Brazil’s public banks, see von Mettenheim 2010.

[50] Alexander 2010.

[51] Jenkins 2010.

[52] WFE 2010.

[53] McElhiny 2009.

[54] Zibechi 2006; Gustafson and Armijo forthcoming.

[55] Stallings with Studart 2006; von Mettenheim 2010.

[56] The basic framework for foreign investment and lending remains Law 4131 of 1962. Certain foreign currency legislation dates back to the 1930s.

[57] da Costa 2010.

[58] ECLAC 2010.

[59] In general, foreign economic policy in Brazil has been seen as a core component—and often the most important one—of the country’s overall foreign policy. See Armijo and Kearney 2008.

[60] Wheatley 2010.

[61] The real more than doubled in value against the dollar between January 1, 2003, when President Lula first assumed office, and November 1, 2010, and was the currency that rose most among all of those tracked by Bloomberg. See “Brazil Treasury Plans to Sell More Real Bonds Abroad,” Bloomberg online, November 3, 2010.

[62] Eichengreen 2010; Bresser-Pereira and Holland 2009.

[63] Prior to the 1990s, debates over Brazil’s foreign policy largely took place within the government, with the involvement of career civil servants and senior political appointees in the foreign, finance, and commerce ministries. In recent decades foreign and public policy think tanks, which issue studies and convene seminars, have played an increasingly prominent role.

[64] At

[65] Eichengreen and Hausmann 2005.

[66] Galindo, Izquierdo, and Rojas-Suárez 2010.

[67] The BRICs were able to agree on their collective demand for greater representation, but not on whether to publicly endorse the goal of trying to replace the U.S. dollar as the global reserve currency, with for example the IMF’s Special Drawing Rights. Although Chinese officials had been most vocal in raising this possibility going into the summit, their enormous dollar-denominated reserves, and “competitive” exchange rate vis-à-vis the dollar would mean that they would have most to lose from dollar turbulence or a precipitous slide. See press coverage of June 17, 2009.

[68] Beck 2009.

[69] Davis 2009.

[70] Nonetheless, Brazil has been cool to the suggestion that it follow the path of Mexico and South Korea and join the “rich countries’ club,” the Organization for Economic Co-operation and Development (OECD), believing that it thereby would lose moral authority and bargaining power as a spokescountry for the developing world. See Fitzpatrick 2009.

[71] The views of private banks nonetheless appear to be driving the net business community preferences, though, as evidenced by the unusually intense lobbying of the U.S. Chamber of Commerce in the late 2010 elections. Even some in the normally enthusiastically pro-market financial press have expressed shock. See Tett 2010.

[72] This poses an interesting problem for some political economy theories of the “varieties of capitalism,” in that, in Brazil as in the U.S., laws dating from the 1930s prohibited most cross-holdings of financial and industrial capital. In Mexico, by contrast, integrated financial-industrial conglomerates were the norm during most of the twentieth century. Yet it is Mexico, not Brazil, where financial interests appear to have held greatest sway over foreign economic policy. Cf. Maxfield 2005.

[73] Armijo and Kearney 2009.

[74] Fleischer 2009; Wheatley 2009.

[75] The debt moratorium was imposed in 1987, and rescheduling wasn’t completed until 1994. Brazil’s last IMF borrowing was in 2002, and it repaid all existing loans early in 2005.

[76] Keohane and Nye 2001; Castañeda 2010.

[77] Something similar occurred in the early 1980s, when the G5 group established on the breakdown of fixed exchange rates among the major industrial democracies found itself compelled to include the then new financial powers, Germany and Japan.

[78] Foreign direct investment in Mexico, especially from the U.S., increased following the inauguration of NAFTA in early 1994. As shown in Table 9 above, however, Mexico’s share in total inward FDI to Latin America has fallen sharply since the turn of the century.

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