Financialization, coalition of interests and interest rate in Brazil

Abstract

Studying the hypothesis of a pro-conservative monetary policy convention in Brazil, as initially formulated by Bresser-Pereira and Nakano (2002) and Erber (2011), we add three particular sub-hypotheses to it: (i) the prevalence of high real interest rates in Brazil for decades has led to the formation of a rentier-financial class coalition. Its aim is to maintain high real interest rates so as to gain from the resulting financialization process, fueled by interest revenues (ii) the existence of a “two-way“ public debt contagion effect between the banking reserves market and the public securities market; and (iii) the use of a high interest rate to finance current account deficits. To this end, the paper adopts as its starting point Keynes’s view of the interest rate as an eminently conventional phenomenon.

When Land Meets Finance in Latin America: Some Intersections between Financialization and Land Grabbing in Argentina and Brazil

“…This process of peripheral financialization has provoked, especially since the mid-1990s, an almost complete dissociation between the (rentier) 'financial' capital accumulation process and the 'productive' capital accumulation process. Thus, for example, and as a consequence of this model of subordinated financialization based on the artificial maintenance of very high interest rates, what Bresser et al [73] call the 'financialization index'-the ratio of total stock of non-monetary financial assets to the economy total stock of fixed capitalhas reached, in the period 1995-2018, 8.6 points (which implies that more than 8 Brazilian reals have been allocated to 'financial' activities for each Brazilian real channeled towards 'productive' ones), compared to an average of 2.0 points in the period from 1981 to 1994. As we will see below, this process of peripheral financialization played a decisive role in the inflow of foreign capital also to the farmland sector.…”

“…In the specific case of Brazil, a subordinate [73] and center/periphery process of financialization [74] has been in place. It is directly related to the existence of a 'rentier-financier coalition' [75], i.e., an economic and political elite-composed of capitalists turned rentiers, techno-bureaucrats trained in the most neoliberal views of economics and financial thought and financial actors-that has dominated the country's economic development since, at least, the late 1980s.…”

Development Trajectories and Institutional Reform in Brazil: The Duality Problem Revisited in the Twenty-First Century

“…As Rangel stated (1981: 32), at the core of this discussion, “the financial issue is an institutional problem,” in the sense of being ultimately in the realm of the political economy. The financialization is the outcome of institutional reforms that enable the extraction of social wealth (Paulani 2017; Bruno and Caffe 2017; Lavinas, Araújo, and Bruno 2019; Bresser-Pereira, Paula, and Bruno 2020; Carneiro 2020). Rangel is also supported by the neo-Schumpeterians because, as pointed out by Peréz (2010a), the financial sector activities enhance disruptive technological development.…”

“…The appreciated exchange rate during the commodities boom lowered the costs of inputs such as fertilizers (nitrogen, phosphorus, and potassium) and pesticides. Consequently, an entrenchment of economic interests gauged political support and media mobilization to prevent any downsizing in financialization (Lavinas, Araújo, and Bruno 2019; Bresser-Pereira, Paula, and Bruno 2020). The ingrained rent seeking in the dominant poles backed up the epistemic narrative about the immediate risks of inflation and the maladies of corruption.…”

“…1 In recent years, interest is resurgent about heterodox ideas, especially in face of the neoliberal stumbling performance of policies. Several points of view are gauged by “structural” or “social” developmentalist approaches (see Bruno and Caffe 2017; Paulani 2017; Lavinas, Araújo, and Bruno 2019; Bresser-Pereira, Paula, and Bruno 2020; Carneiro 2020), and endorse the process of "financialization" at the core of the Brazilian crisis. Also, greater scrutiny about Rangel's theoretical contributions is evolving in current conditions (A.P.C.…”