Latin America has the options to confront
the crisis in the financial system

Caracas Oct. 22.- The Latin American and Caribbean countries have the option of attempting an adjustment process with economic reactivation, as a formula to confront the financial crisis which is stalking the world and which has affected the region because of the application of a "fundamentalist" vision of globalization, the former Argentine minister and economist Aldo Ferrer said today at SELA.

Ferrer, who participated in a workshop on "Latin America and the Caribbean vis-a-vis the current challenges of globalization," held at the headquarters of the Latin American Economic System (SELA) in Caracas, said that our region has been unable to come up with an "adequate response" to globalization, and therefore we continue in a state of underdevelopment.

The expert stressed that the countries in our region should pursue the reforms undertaken in the public sector, but they should also adopt an economic reactivation policy that includes, among other elements, low interest rates, credit regulation, and special programmes to support certain activities in the public and private sector.

"If these measures are applied in a responsible way, they would be looked at favourably by creditors, but if they don’t like what they see and our countries respond in a tribal way, then the markets will have to assume the unilateral responsibility of placing these countries in a situation where they cannot meet their commitments," Ferrer said.

The Argentine expert, whose professional and political trajectory was stressed by the Permanent Secretary of SELA, Carlos Moneta, when he addressed the diplomatic representatives of the 28 member countries of SELA, academics and the organization’s officials.

Ferrer indicated that the current financial crisis has basically been a blow for peripheral or developing countries "that deregulated their financial activity, whether their house was in order or not."

He went on to point out the Latin American cases of Argentina and Brazil, where "recession" is the only response to the turbulence on the international financial markets.

Ferrer also stated that "Brazil, because of its fiscal deficit, has been forced to face up to a very intensive speculative assault (...) and if the adjustment is applied under the announced terms, a strong recessionary impact will follow.

In the Argentine case, partly because the convertibility rules were strictly maintained, everything points towards a slowing down of industrial activity, increased unemployment and interest rates. The situation is certainly not chaotic, but the extent of the economic downturn will be felt during the coming year," he added.

Ferrer, who is the author of "History of globalization: origins of the economic world order," among other publications, said that the situation which burst in Asia a little over a year ago and was felt throughout the world, configuring the first financial crisis of a global nature in the second half of the century, has caused further debate about globalization.

"There is no doubt that one of the most spectacular elements in this process is that of the globalization of the financial field," he said.

In this respect, he said the growth of international finances has been much more intense than that of production and world trade and he gave as an example the so-called "institutional" investors that handle pension funds or mutual funds, and the insurance companies.

The total assets of these funds, of which approximately 50% correspond to operators in the United States, is around 21 billion dollars, a figure that represents between 70% and 80% of the value of the world product, he said.

In the case of the derivatives market, the current stock is 40 billion dollars, that is, one and a half times the value of the world product, while the share market has grown four times over since the beginning of the decade.

These activities in turn are reflected in the exchange markets, where the total of daily operations is to the order of 1.6 trillion dollars - equivalent to the official currency reserves of all the monetary authorities in the world - of which 95% correspond to transactions of a strictly financial nature and barely 5% to the payment of real trade or real direct investment operations, he said.

But vis-a-vis this "virtual economy" represented by finances, and that moves thanks to technological advances, especially in the area of communications, there is a "real economy" represented by the production of and trade in goods and services, which today represents little more than 20% of the world product.

According to Ferrer, reality indicates that more than 80% of world production is sold inside the countries themselves. This same percentage is also met within Latin America.

"More than 80% of what Latin Americans produce is bought mainly by other Latin Americans, while 9 out of 10 Latin Americans work for another Latin American," he said.

"In my opinion, the internal dimension coexists with the transnational dimension, and the most irrational aspect of this fundamentalist vision of globalization is that it weakens the very bases of transnationalization," he added.

"If economic strategy is subordinate to the service of the transnational segment, the social and productive structure of the nations is sacrificed, and the success of a country’s insertion in the world is guaranteed by the wealth, variety and diversity of its productive, scientific and technological structure," he continued.

In this context he believes that Latin American integration "once again configures a very important potential space for the solution of many of our problems."

"If we were able to consolidate what we have done, which is quite a lot, in the area of integration, with a more fraternal and more rational action of mutual strengthening, we would be more able to confront these turbulences in the world and in better conditions to respond adequately to globalization," he said.

"In short, globalization is not an inflexible scenario and each country adopts its options. We have an open space to continue along the path which has led us to inconvenient situations, or to choose another one, which is not easy, but it’s possible," he concluded.

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