Processes of Social Participation associated with the New International Financial Architecture and the Transformation of the International Financial Regime

Pedro Páez Perez

In the context of this structural crisis, to talk about social participation leads us to a key point: the role of political praxis in creating the historical subject within the scope of this systemic crisis of capitalism.

I would like to start by stressing that this one is not merely a financial crisis. What we are experiencing today is a confluence of various crises within the scope of a structural crisis of the capitalist mode of production. As events unfold, the issue of moral guidance in this process is of utmost importance. That is why we have to be very careful and think twice about executing a mere defensive and “balanced” policy. It is crucial to take initiative and to build a social reference as alternative to the frustration and rage of the people when it comes to create a historical subject, because at a political level there are real objective and subjective elements capable of turning this crisis from structural into a systemic crisis. Hence, it is vital to stop the oligarchic agenda and to reverse this ongoing concentration of power, currently prevailing upon the basis of the process of concentration and centralization of capital, which, indeed, has already seen an exponential pace of growth over the last centuries, but that with this crisis, that pace has truly reached exorbitant levels.

Recently, Forbes Magazine published an article about the list of the world’s billionaires: over the last year, not only has the number of people who have more than a billion dollars increased by 30%, but also the list of the world’s billionaires, which is not exhaustive, shows that the control over the financial activities held by this group of wealthy people has tripled. Over the same period of time, millions of people have lost their jobs, especially in the North. Meanwhile, in the South the majority of people do not even have the privilege of having a formal job in the first place: such circumstances do not only put their employment situation at risk, but also their basic living conditions, which are already precarious. Despite excellent scientific and technological advances, there are still millions of people suffering from serious food insecurity. According to FAO, since the outbreak of the financial crisis one and a half years ago, around 200 million more people joined the number of those already suffering from hunger. Then, beyond the official narratives and the popularized interpretations, the explosion of the crisis and the actions undertaken to “solve” it have worsened the conditions of vulnerability of billions of people, while rewarding the richest segments of the society, most of whom directly responsible of the corruption and incompetence in the financial operations that conducted the whole world to a dead-end road.

In this framework of accelerated social polarization, it is vital to identify the crisis as a class instrument, as a mechanism seeking to reduce the power of individuals, communities, and nations to a situation of powerlessness: with the threat of hunger, the notions of national and popular sovereignty take other dimensions. The fiscal, currency and banking crises, to varying degrees and extent, intensify this powerlessness also under different horizons of precariety.

A fundamental part of creating the historical subject is to empower and to emancipate the individuals and, in doing so, the left has to recover the banners of freedom and the decision-making power for the individual. We need to rescue the role of the individual in history, in its collective dimension as a component of a historical subject, and within the scope of a national construction that goes far beyond the role of the small nation state and which points to another vision of the regions seeking to build a multi-polar world.

The horizon of a multi-polar world requires the strengthening and redefining of the ongoing regional integration experiences in the framework of a system of nation-states that has become dysfunctional to the oligarchic interest in the perspective of this structural crisis. Now, it is fundamental to garner political accumulation from the territories and the communities. This, however, is not only limited to the issue of “sovereignty” as it often tends to be the case in discussions here in Europe. Quite the contrary, the issue of regaining the nations’ capacity to act has to be addressed not only from the perspective of building a “Patria Grande”, like in Latin America; but also from the perspective of rebuilding the concept of power from the territories and communities, or from what we would call supranational sovereignty, national sovereignty, sub-national sovereignty, popular sovereignty – basically everything as part of a coherent process of accumulation of power from below. The challenge is to develop a national guidance of this process based on assuming initiative in the short, medium and long-term which will enable the empowerment of the progressive forces, but not based on the traditional view of the political spectrum with its linear view of the structure of politics (this is how close we are to neighbouring parties of the centre). In this logic of linear geometry from right to left, we would already be conditioned by these formal proximities in the alliances.

I believe the crisis opens up enormous opportunities towards the articulation of different form of coalitions – not necessarily electoral but programmatic – which will allow us to break free from these types of restrictions we are prisoners of, and with which will define precisely how to block the oligarchic agenda that is currently expanding.

I think it has been mentioned a few times; or it has been referred to implicitly in the presentations: This crisis of civilisation we are experiencing now, just like the crisis in the nineteen thirties, places us at a historic crossroad. It did so back then because among the projects that were on the agenda was the project of social regression. Today – due to the confluence of various types of crises – this could prove even more dangerous.

The solution to the structural crisis back then was eventually brought about by the victory of the antifascist forces as a whole. In the North this paved the way for the thirty glorious years of capitalism brought about by the Social Democratic Pact here in Europe and the New Deal in the United States, as well as the socialist bloc in the East and the national popular processes and national liberation processes in the periphery. Behind these events were issues that need to be addressed today as well.

We are not talking about a mere political issue, but we are also talking about the significance of having a governance combining politics and economics, but always from a perspective that favours the articulation of forces. Hence, it is important to have a resolute programme, which permits assuming initiative, while at the same time turning the progressive forces into a reference of a process of distinct political consolidation that will mark the process of popular construction. This process of empowerment, in the short, medium and long-term should allow blocking the neo-fascist project (the obscurantist project) and its attempts to revert the advance of the popular conquests. This also requires – beyond good will on our part – that we focus our work not merely on the objective forces, but also on the subjective forces in which our social actors operate.

That being said, I think it is crucial to grasp the current crisis in a responsible manner and without compromise as a systemic one. We are experiencing an exacerbation of the mercantile fetish, understood by Marx as alienation: the presence of the market as a monster acting as an external agent disconnected and independent from human volition. The current crisis, which was induced by the process of concentration and centralisation of capital also implies a centralisation of power that reduces humankind to a state of indefensiveness and powerlessness at the very moment when major and preventable events are presented to us as being a circumstance that is absolutely alien and immune to human volition, inescapable, inexorable, natural…

We need to de-fetish the crisis by adopting everyday political actions. And even though – within the destructive explosion we are currently witnessing – there are various long-term mechanisms put in place which do not exclusively cater to the special interests of one group or the other. The logic is still, however, that those actors holding political, economic and ideological power profit from this crisis. While it is crucial to study the crisis of capitalism in its most profound theoretical dimensions, we also need to analyse and understand the capitalism of crisis: How is capitalism fares in these difficult economic, financial and political times?

Part of the progressive political action is to spread the necessary social pedagogy so as to uncover that unemployment and adjustment policies are not mere natural phenomena affecting all of us equally, without anybody’s fault, just like an earthquake or flood catastrophe. It is crucial to place responsibilities in the hands of the powerful groups and denounce the logic of capital against life in this historical phase.

The wave of speculative attacks which we are currently witnessing in Europe (if you recall, we warned of this in our meeting last year) does not only form part of the technical conditioning of the mismanagement of public funds, but it is also related to specific economic, financial and political agendas embroiled in a bloody struggle within the global bloc of power.

It is very important to note that there is a very complex set of new circumstances and impasses emerging from the crisis which does not only point to a slowdown in the usual rhythm of the production processes and the accumulation process of goods, but also puts into question the process of re-productive significance: The crisis marks a unique opportunity to break with the criteria which have until now been perceived as “normal” in terms of rationality. Based on this perspective, taking into account the objective and subjective conditions of the actors, the left can start preparing a contra-hegemonic proposal, assume moral guidance of the process and also initiate the possible beginning of a new historic bloc.

There are no processes without historical subjects. It is very important in this context, in particular for Latin America, to understand the dialectics between “originating” accumulation (put it in the gerund, not only primitive or original accumulation, or accumulation by dispossession) and “ordinary” accumulation of capital. In contrast to the primitive accumulation – understood as a fact in the past, frozen in time, the “originating” accumulation constantly reinvents itself in the center, the periphery and the semi-periphery, although in differentiated ways. It is a sequential expropriation-reinstallation process of production conditions that are ever more precarious for the labour power without any other possibilities of self-sustain. The “originating” accumulation also includes what authors such as David Harvey refer to as accumulation by dispossession, operating in more widespread conditions precisely because of the process of the degradation of civilisation, which marks the current crisis in the senile phase of capitalism, in which not only the economic but also the political impacts of this process become evident – as I have already pointed out earlier.

The dialectic tension between this form of accumulation (“originating” accumulation) and the normal accumulation of capital (“ordinary” accumulation) defines historical structural limitations to the processes of creating a citizenship and the Hegel-Weber promise of a state as an expression of rationality- expression of a collective will.

The incapacity of capital to become in the periphery the predominant quantitative productive form (and not only the dominant mode of production) marks the limit in the reproduction of the historical subjects in terms of objective and subjective aspects, and constitutes obstacles to the capacity of introjecting the rationality of power.

Within the historic framework of an ever growing, widespread and problematic awakening of the peoples of the planet, the formation of culture more or less under the hegemony of the global North – where in its womb the canon of reality should not oppose, at least as a promise, these limitations of the periphery – establishes a set of universal values that clash with the realities and tendencies of the vast majority of humankind.

Based on these structural limitations of particular geographic definitions conceived according to the visions of the peoples, their frustrations and their de-legitimisation, there are at least two key and timely factors that are operating with intensity today:

* One is the ever growing prevalence of human mobility, migration flows and transnational families; unfortunately I cannot delve into this here today. However, it defines a very concrete dynamic of comparisons, generalisations and expectations that are complex in terms of substance.

* Secondly, the structural crisis itself.

The conquests of civilisation propelled by the capital and which Marx and Engels praised over in the Communist Manifesto have now started to disobey the logic of the accumulation of capital and the structuring reality of the concentration of power; something we are currently witnessing and being victimized by. There is a tremendous concentration of power and therefore the speculation/war-profiteer agenda of these mafias, which are part of the political reality as well as of the structural impasse of capitalism, become ever more prevalent in terms of time and space.

Due to the structural crisis, there is a relatively sudden need to change what is perceived as “justifiable”, “normal” behaviour of power, which causes the mechanism of social legitimisation to lose power.

Facing the crisis of profitability at the core of the productive capital which has been evident since the sixties, the financilisation and globalisation that were offered as solutions mark a shift in the fundamental logic of accumulation towards circulation and short-termism, which has already posed enormous challenges in social control.

The financial explosion about two years ago marks an even more profound impasse regarding these possibilities of profitability, known as “real economy”. The fundamental mechanisms to improve the profit rate of the high finance – of the effective structures of power found at the peak of the system – are characterised by specific bouts of speculative bubbles, rip-offs and war bouts, which need distortions by the media, interventions in mass sociology and all different types of extreme actions to make it pass as “permissible” (read Naomi Klein).

There are clear priorities for political action today that have tactical as well as strategic impacts:

  • War is always an easy and profitable business for them. Therefore, it is fundamental to organise the progressive political forces in such a way so as to block this agenda of hegemonic power surrounding these concrete possibilities of unpredictable dynamics.
  • The economic pressures have played a very efficient role in disciplining the masses and therefore the construction of an anti-hegemonic culture arising from the progressive forces does indeed need to offer immediate solutions, and in the long-term also viable solutions vis-à-vis the crisis, like a civilizing imperative which breaks with the new framework of “impossibilities” which become generally accepted.

It is very important that we do rise up to this challenge that is theoretic as well as operative in nature. In contrast to the theories of classic imperialism, there are a number of macro-economic and financial manipulations that have not been sufficiently analysed, neither in the field of economics nor in critical or heterodox literature, not to mention in the orthodox neo-classics.

We indeed have a systemic crisis and the alternative solutions to get out of the crisis are also systemic. There are stumbling blocks that can inevitably be felt by the way the system works in certain moments in time. In “normal” times all the “cogs in the wheel” of the system (objective and subjective) are running smoothly and unfettered. But in times of systemic crisis blocking and clogging occurs that is increasingly hard to mend, in objective as well as subjective terms. If we manage to channel social and political energy towards these neuralgic points, in these stumbling blocks of the system, the possibility of bringing about change is much bigger than in “normal times”.

We need to engage once more with doctrinaire and theoretic rigour in the analysis of the capitalist mode of production, not only as a productive mode (in that sense, the capitalist enterprises will have a long life) but also as a criterion of totality, as an organizer and a systemic regulator of the global economy as a whole. This mode of production is currently stuck in a senile phase and a good part of the reforms which thirty or forty years ago could have been absorbed are now simply no longer compatible with the current power structure, or with the new need for exploitation – neither here in the North nor in the South.

Far beyond a bit of spark that was present in the discussions about the socialism of the twenty-first century, some of the reforms which were included in this perspective are those formulated by the Alliance for Progress, the World Bank in its early days, and the advanced positions of the right and the centre right in the sixties in Latin America. We are not trying to dogmatically infiltrate these possibilities, quite the contrary; we are trying to assess with all the theoretical rigour the potential these options bear for the articulation of the empowerment of the people and for the construction of popular, national and supranational sovereignty. We also explore other theories. We are trying to avoid encapsulating ourselves in any prefabricated model of socialism we deem desirable obtain.

Focusing on the reforms which tactically allow us to empower the people and strategically open up objective and subjective conditions to lead superior social struggles will enable us to advance the creation of the historical subject and reclaim the true role of the left in government coupled with the nurturing and construction of popular power, with the aim of regaining the capacity of individuals and communities to take decisions.

With this vision we can already overcome the limitations that come with measuring the left in government against pre-established recipes or parameters. It cannot be required as a rule, for example, for us to pin ourselves down to a certain position with regard to the processes of nationalisation. Starting with decision-making capacity, we need to find other considerations: the concrete analysis of the concrete situation and not widespread dogmas. We have a serious problem, to put it mildly, with a priori solutions.

For example, the significance of an efficient public bank that is guided by strategic objectives in the process of change must not be underestimated, and the call for public control of a bank that has received a bailout from the state is not to be undermined. That being said, it is still very risky to nationalise a bank that is in serious trouble (as has been done in Island). In some circumstances this nationalisation means taking on a gigantic debt and getting entangled in serious economic, political, and ideological problems, the consequences of which will thwart the interests of the people. The thesis of nationalisation has to be preceded by rendering priority to debt service mechanisms, the separation of the speculative part and the protection against bankruptcy for the productive process and employment.

I think it is very important to understand that at this historical junction, it is necessary to develop a programmatic agenda that includes tactical as well as strategic tasks so as to respond to the immediate political discussion and envision changes in the mode of regulation and the regime of accumulation, the mode of production and the mode of life.

Not only are we faced with a crisis of the capitalist mode of production, but we are also faced with a crisis of the mode of life: This is a concept of longer duration that forms part of the Latin American experience of countries such as Ecuador and Bolivia, where it is known as Sumak Kawsay: living in self-realisation (vivir en plenitud), living well (el buen vivir). This goes very much beyond the mere discussion about overcoming the mode of production: It is about a different kind of relation between humankind and nature and also about a different type of relation among human beings.

This is how serious the task is, when talking about reactivation policies within the framework of a new model of development and a new model of civilisation at the same time: We cannot subscribe to the illusion harboured by some sectors that we can change the mode of life without overcoming the dominant mode of production; this in turn is not possible without changing the regime of accumulation which defines it (in terms of priorities and rhythm of investment, distributive dynamics, division of labour and articulation with other productive logics), and doing so implies reassessing the mode of regulation (a combination of economic policies and institutions) which makes this regime of accumulation viable.

The question now is how are we going to do this in the face of these concrete conditions? In answering this question, I would like to restrict myself to Latin America, which is the case I know the best. We have been prisoners of a historical matrix of dependency for 500 years in Latin America. This was aggravated by neoliberalism over the past thirty years, which has not only led to a rapid deterioration of the productive fabric, mostly build up in the context of the capitalist modernization but also to an institutional dismantling which has been at the heart of a transformation process of social actors who the progressive forces have to attend to.

I would like to briefly mention those monetary, financial and macroeconomic elements that do not usually form part of the progressive discourse. The role of Latin America as a supplier of primary commodities based on an extractivist model, wherein labour power and nature are our only “comparative advantages”, was originated by the Borbonic reforms (and the Pombal reforms in the Portuguese case) dating from the eighteenth century, redefining – from a “British” idea of free trade – the international division of labour.

Even today, in economies that reached a diversified and dense productive potential, such as the Brazilian and at some point also the Argentinean and Mexican ones, the productive engine ultimately depends on and is shaped by the level of our international insertion on the basis of lowering labour and natural resources costs. The structural plunder committed against labour power and nature goes largely against the idea of an alternative model of development.

The nation-building endeavour explored alternative horizons including the political experiences that emanated from our liberators’ dreams of the continental project of the Patria Grande and the experience of Paraguay before the War of the Triple Alliance; and during the twentieth century, the popular-national and democratic-revolutionary processes which, based on ISI (the import substitution industrialisation) found diverse expressions in the attempts of several countries of the continent (Vargas in Brazil, Perón in Argentina, Cárdenas in Mexico and even Chile during the Allende era). Historical proof shows that it is not technical elements or endogenous economic factors – as suggested by the specialised literature – which defined their limitations and failures, but rather political and military defeats which stifled them.

It is very important to reconsider these processes from a critical and rigorous perspective that is not constrained by conventional thinking imposed by the right and which will allow us to advance with concrete instruments so as to use the participation in the government again as part of the effort for creating the historical subject.

Assuming governance involves regaining the tools required to give back to the individuals, the communities and the nations the instruments and capacities to make decisions with regard to critical aspects. Among the defining factors of the “generation of impotence” there are processes, in hierarchical order, such as the erosion of monetary functions, financial transnationalisation, the transfer of traditional instruments towards the “automatism of the markets”, if not even the open surrendering of sovereignty, such as in the extreme case of the official dollarization.

The legacy of three decades of neoliberalism in Latin America is an exacerbation of the extractivist model for the supply of primary commodities, a higher dependency on differential rents and hence also a higher dependency on the reproduction of the dominant class on the basis of a rent-seeking strategy. Workers are pushed into an even more precarious situation; their role in the formal subsumption of labour under capital is ever so diminished; and therefore they are less involved in creating and building spaces of struggle, such as the trade unions (with important exceptions in Brasil and Argentina). In the unions the formation of the consciousness of the working class per se starts being dissolved at the hand of mechanisms emanating from everyday-life that are stained by the culture of “Every man for himself!”, the omnipresent fierce competition, postmodernism and consumerism.

I would like to briefly show – without trying to be exhaustive – some figures which characterise the development of Latin America over the last decades. Many, including us in the left, have bought into the idea of the neoliberal mode of regulation offering a leap towards modernism and efficiency, because that is the model of entrepreneurs who will stimulate investment. In practice however, the statistics of ECLAC (CEPAL) show that the rate of investment under the accumulation regime of ISI was between 25–30% of GDP. Due to the neoliberal governments and policies that were put in place by the nineteen eighties, profiting from the debt crisis, it dropped to 15–20%. This rate will only recover when progressive governments come to power.

The production slowdown and the de-industrialisation changed the material basis of the workers’ struggle by significantly reducing their participation in the generation of national revenue with escalating social effects marking a rise in indigence (15% since 1980) and poverty (34%), in absolute as well as in relative terms. This is only alleviated when progressive governments come to power later. Notwithstanding their efforts, the social programmes these governments implement continue to be largely ensnarled in direct transfer policies that remain within the same epistemological and operative framework defined by the World Bank.

The confluence of diminished investments in the production capacity, social polarization and a restriction of domestic markets, characterises a regime of accumulation that leads to more uncertainty, and therefore desperation and dependency on international markets. It is also responsible for the much poorer development of GDP, not only in terms of the historical average, but also with regard to its degree of volatility.

This is not idiosinccratic to Latin America. An global inventory conducted by the International Monetary Fund itself finds that there have been 267 financial banking and balance of payments crises since the beginning of the era of neoliberalism. However, neoliberalism was sold to us as the model we so needed. Judged according to its own parameters, the regime of accumulation that was fuelled by neoliberal policies does not lead to an increase in growth or to the improvement of fiscal sustainability or the sustainability of the balance of payments. While ISI lead to a dependency with regard to capital goods and imported inputs and a frailty in the external sector, the regime of accumulation brought about by neoliberalism reproduces this frailty that is now, however, linked to the massive import of consumer goods and luxury articles.

The last decade has seen a recovery due to very favourable conditions presented by the continent’s international terms of exchange – conditions that have never been recorded since statistical surveys were first conducted in Latin America more than a century ago. This explains to a large extent the accumulation of reserves, the reduction of external debt and the fiscal improvement in the region.

The role of the progressive governments of the continent needs to be redefined with respect to several nuances. The limitations and possibilities of these progressive governments within a structural context to create the historical subject also have to be reconsidered. We are directly put at risk by this new phase of the expanding crisis that now poses more serious threats. It is crucial for us to understand the ferocious and brusque nature of the newly emerging vectors of change, and to address them with due caution; taking them into account will help bring about a radical transformation in our political and economic agendas.

Let me kindly remind you that a year ago we had a similar meeting; and who would have thought back then that the Euro would be under such serious threat in such a short period of time. An adequate interpretation helped shape a swift response. It is probable that the next victim of the speculative attack is going to be Latin America, which hitherto has fared relatively well.

I insist, we do not only need to understand the crisis of capitalism, but also the capitalism of crisis.

The reduction in export markets in terms of price and quantity, which we already saw in the previous phase of the crisis, the credit crunch, the speculative bubbles which define a latent balance of payments crisis and a stronger anxiety regarding hard currency liquidity, is exacerbated in the current period by a qualitative dislocation of basic adjustment mechanisms of global markets: Above all, we see a distortion in the formation of commodity prices. Prices of our main commodities, such as crude oil, soy and copper have less and less to do with reproduction costs, but are increasingly subject to stock-market speculation.

On the other hand, we have the metastasis of the basic vectors of structural insolvency of the financial system. Apart from the nominal inflation of financial assets linked to real estate at the centre of the system, we now also see its dispersion into other areas and instruments as well as an ever increasing destruction of the basic mechanisms for the generation of revenues: reductions in real wages, employment and public spending.

There are also new elements that make the global situation very vulnerable and fragile; their full scale has not yet become visible. However they increase incentives for speculative attacks against attractive assets and siphoning out mechanisms that facilitate wealth distribution from the the subsidiaries to the parent company in transnational corporations (be very careful with the Spanish flu!).

This has adverse effects for the recovery of internal credit; it affects the animal spirits of entrepreneurs, which tend to increasingly make use of defensive strategies instead of making long-term investments, which could help boost production and employment. Given the potential convergence of these elements, the robustness of the banks could be called into question, which in turn often gives rise to speculation, short-termism and predatory behaviour on the part of large financial groups inside and outside of the continent.

Even though they have only a minor impact, these elements exacerbate the extractivist model for the supply of primary exports. Whether progressive or not, from the government we all have to look after the soundness of our currency which assures macroeconomic-financial stability and external viability is key in that sense. With the current deregulation in the exchange rate markets, hard currency shortage is the splendid occasion for speculative attacks.

The dollar dependency, then, is a key factor for our under-development. In order to maintain the dollar inflows, our “comparative advantage” it is indispensable, and in order to “improve” it, we need to keep the wage costs and natural costs low. But even in the short-term, the depredation of labour power, biodiversity, and ecosystems will not prevent but rather aggravate the latent conditions of a possible financial and economic crisis on the continent.

These reflections are an invitation to discuss the electoral calendars in Latin America, Europe, and the United States and establish programmatic lines that include but also transcend them.

In the light of all these circumstances, the progressive governments in Latin America are faced with a potential and sudden deterioration in their capacities to act effectively. As a further possible consequence, a big question mark also hangs over the process of integration, which contrary to the European case, in which supranational sovereignty grow at expenses of the national one, in Latin America determines the capacities of each nation- state to act within the limits of their own borders.

Far beyond the important progresses made in the field of politics and institutions, the field of economics, the current schemes of integration have been whittled down to the conventional framework of tariff policies and continue to be extremely weak; because part of the countries are tied to extra-regional free trade agreements which have undermined the possibility of a common external tariff. And this is happening amidst growing pressure for bigger concessions in the negotiations with the European Union and within the World Trade Organization. Suffice to show the impact of a “market correction” (within the framework of exchange rate wars) of the Brazilian Real on the productive aparatus of Argentina, the stability of the Argentine government, the continuity of the progressive processes in that country, and the possible domino effect it has on the rest of UNASUR (Venezuela, Colombia, etc.).

The crisis can be turned into a powerful weapon to reduce nation-states, governments and individuals to a state of powerlessness. From this perspective, the New Financial Architecture appears to be a necessary, minimal and insufficient condition to defend ourselves and guarantee the basics: creating the conditions for a response on the part of individuals, communities and nations.

A global proposal is needed with regional and national contents. One cannot speak of a Global Financial Architecture and a New Regional Financial Architecture without also speaking about a productive transformation which requires a New Domestic Financial Architecture in order to create a new type of economic policy. Paraphrasing the thesis 11 on Feuerbach, as other colleagues have done, we would in this case say that it’s not about taking over the government but transforming it.

The technical challenges of the economic policy in Latin America have to guarantee the dynamic coherence of the mode of regulation so as to strengthen the viability and the sustainability of a regime of accumulation that in the long-run moves away from primary exports and in this way empowers people, giving them back their decision-making power. Only a mode of regulation focused on capacity building is able to promote development. This means that a series of institutions and policies are needed to strengthen the articulation between private capital, the de-privatised and non-corporatist state and the Popular Economy in all its diversity. The New Financial Architecture would be instrumental in achieving this by establishing a new relationship between the financial system and the productive system, be it big or small, capitalist or not capitalist. Based on this, a re-negotiation of the international division of labour and the general patterns of the generation and distribution of revenue would eventually become feasible.

It is important to break with the monopoly of global liquidity held by Wall Street and the US “Federal Reserve”, who finance multi-billion dollar bailouts for banks, the expansion of the wars in Iraq, Afghanistan, Pakistan and other countries as well as the fourth fleet in Latin America, the seven military bases and the deployment of US troops to the national bases of various countries of the region. Obtaining the issue of annual Special Drawing Rights (SDR) without conditions, as has been achieved by the G192 and the “emerging economies” in 2009, can help redirect this liquidity towards new mechanisms of South-South cooperation based on regional agreements such as ours in Latin America, and it would also pave the way for a new type of North-South relations.

Without entering into details, suffice to give you the gist of a global proposal for a New Regional Financial Architecture that is to rearrange and de-concentrate the uni-polar power structure of the old institutional architecture that still prevails. Reflecting the economic, cultural and historic conditions of each situation, these regional bloc agreements would include a new type of a development bank which sets out another set of priorities focusing on the logic of life instead of the logic of international financial capital. Such priorities are sovereignty in the field of food, healthcare provision, energy, production of knowledge, the financing of the popular economy in all its diversity so as to provide decent jobs for people. This proposal is steered towards generating options and conditions so that this social and productive energy can unfold all its potential. In contrast to the demands made by transnational financial capital for big profits in very short periods of time, our focus will be on other forms of community participation favouring a family economy and popular economy. The Bank of the South is the beacon of hope for South America in this context.

A second component includes the creation of a space of monetary and regional financial sovereignty linking the surplus regional currency to “real” direct transactions via the payment compensation schemes that value the work and the production of the people via a balanced exchange, far from the primary object of today’s key currencies: speculation. The most innovative project in Latin America in this context is SUCRE (Unified System for Regional Compensation) , an instrument already used in commercial exchanges between members of ALBA.

These components require a third pillar for their protection: a netlike support of supranational financial security that consolidates regional recovery of the coherence of flows and the productive machinery. Ecuador has formulated a proposal in Latin America, titled Fund of the South and is based on the connection and transformation of the central banks of the continent with regional savings procedures, and a synergy governance of international reserves, national currencies and joint currencies. In this new institutional framework the global SDRs, for example, can be part of the mainstay for the issue of regional SDRs, like SUCRE, offering a scheme that would set free a massive quantity of resources –currently trapped in fear of speculative attacks –to be invested in the generation of wealth and well-being.

Various initiatives of bloc-to-bloc cooperation in the global South based on similar mechanisms would redefine a new multi-polar balance based on the real priorities of the peoples and the reinvention of the currency as a form of recognition and a driving force for labour and creativity.

For the North, these SDRs can hardly be more than just an accounting item. Generally the restrictions of globally accepted currencies are not exogenous restrictions, but self-imposed restrictions. Apart from regaining the capacity for action by giving the universal right to employment priority over bailouts of banks, the North could well donate its SDRs shares for the compensation of the historic debt and also the financial explosion of this global crisis. These annual resources could be used as an agile fund to alleviate humanitarian catastrophes, acute hunger, extreme poverty and environmental catastrophes. With minor changes in the current norm, these resources would reactivate the North’s own international markets without inflationary pressure, financial costs and without budgetary disputes (no industrialised country has used its SDR for fiscal financing), thus significantly redefining its relation with the South when it comes to finding effective solutions to these global problems (such as global structures offering efficient incentives to change technical norms and paradigms that are contaminating, dislocating and predatory in terms of production, consumption and transport).

Making headway in these few aspects would without a doubt cause resistance and retaliation. We should therefore insist in putting in place a series of measures that we have been working on for a long time:

  • The moratorium and the audit of debt as global proposals;
  • New and immediate directories with representative officials of the regions to provide and administer resources for productive reactivation without conditionalities and also preventing the International Monetary Fund which has multiplied its sources from reviving its blackmail power.
  • Universal prohibition of speculative mechanisms, such as short selling, CDS and others, and limiting the long positions of food, energy and precious metals in futures markets due to the harmful effects they can have;
  • Regulation of Hedge Funds;
  • Separation between the finance strictly related to the productive process and the rest (mostly devoted to speculation) in the spirit of the 1933 US Glass-Steagall Act.

This means establishing a specific agenda that is based on the interests of the peoples and not on the interpretation of the information gathered in opinion polls with regard to what the position of the left should be. The social productive processes cannot be re-launched without the massive destruction of the fictitious capital linked to this prevailing parasitical hypertrophy; and this inevitably defies the structures and the culture of the oligarchic and imperial powers. It is humanity that is at risk.

Macroeconomic dependency, market impossibilities and alternatives

History has shown that small left projects always end in frustration, since they cannot fence themselves off from their conservative environment. While there has been a great increase in experience, and hence necessary learning processes, and wonderful examples of human solidarity and creativity, often, such projects only survive as long as there is outside support. The people centred economic systems too have often shown themselves to be insufficiently sustainable under conditions of the capitalist market, especially when forced to contend with multinational corporations. Hence, the objective and subjective preliminary conditions for the sustainability of such project has to be created. For this, a thoroughgoing analysis of the regime of accumulation and its social structures is necessary.

Macroeconomic problems are the basis for all considerations regarding regimes of production. Here, it is necessary to consider that the Latin American state does not correspond to the Western European Hegelian state ideal. Rather, it is determined by the current local balance of forces, with very different relationships between private capitalist oligopolies and the rest of classes and fractions. In brief, the Latin American state is a crippled institution.

In the past, and the assumption was that a development-oriented state in the countries of Latin America would be able, supported by broad popular alliances, to develop a welfare state on the basis of import substitution. The oligarchic and imperialist coalitions historically prevented a full deployment of the project due to the balance of forces with the working classes that it carried. With the neoliberal dismantling of the productive fabric and the institutions built during that period, the life of the majority of the population has become ever more precarious in recent decades. Primitive accumulation as described by Marx is not history – in Latin America it is the sorry present: it is better to talk about “originating” accumulation. The dialectics between “originating” accumulation and the “ordinary” one re-creates the conditions of backwardness in the development of the productive forces, the social polarization and the lack of voice and real participation of the masses.

The financial relationships between economic actors are the central point to be addressed in reorganizing the economies, since capitalism is a monetary system of reproduction. Without money, the labour process cannot be deployed under the present circumstances. For this reason, there is here a point of entry for change. Heterodox economists have neglected the significance of the financial system for progressive change.

But how should we proceed? In the following poem, Antonio Machado refers to the difficult learning process to which the Bank of the South and the New Regional Financial Architecture, too, is subject:

Wayfarer, the only way
is your footsteps, there is no other.
Wayfarer, there is no way,
you make the way by walking.
As you go, you make the way.

Historical matrix of dependency: trade, technology, money and finances

Latin America has been a supplier of raw materials to Western Europe and the USA since the eighteenth century. The initial colonial monopoly destroyed the internal coherence between production and consumption, creating a mutual feedback between trade dependency and technological dependency. The trade balance implied a permanent drain of resources, value and liquidity through unequal exchange and unequal development. Gradually, the trade and technological dependency required loans to temporarily cover the balance of payments deficit, but the service of the debt worsened the situation in a dynamic that produced feeble monetary conditions. Political independence soon became complicated by an additional vector of dependency: that coming through money and finance.

During most of the twentieth century, Latin American currencies were dependent on the US dollar. Since the 1930s, the New Deal developed in the USA, while in South America, the national economies developed a new set of institutions that enhance national sovereignty, including more or less incipient sovereign systems of credit and the basic instrumental of economic policy. National-democratic and national-popular processes multiply according the diverse domestic conditions in each country; there were even examples of socialist processes, as under Allende. But while during the Cold War, there were social openings and concessions by the ruling strata in the USA and in Western Europe, the social economic development of the countries of Latin America caused the elites of those countries to turn to military dictatorship so as to purposely reduce the conditions of life and the political weight and participation of the working classes. First, military violence was imposed; later, there was a switch to economic violence.

The pass from an import substitution industrialization regime of accumulation to a financialized regime of accumulation through the imposition (by the states with the pressure of the IMF and the World Bank and the transnational corporations) of different neoliberal modes of regulation, transformed the productive apparatus, the institutions and the social classes (with their political and societal projects) in Latin America.

The current negotiations in the WTO and the Doha Round show how the USA and the EU deal with Third World countries. Here, simple administrative ordinances are used to impose new relations of power in economic relationships. Even though the Obama administration is in no way better in this regard than its predecessor, the EU, with its Economic Partnership Agreements (EPAs), imposes even more unfair and violent agreements.

This brings us back to the question of the power relations based upon that historical matrix of dependency: trade, technology, money and finance. The effect is that financial speculation and deregulation of becoming ever more widespread, the result of which is a further destruction of welfare states. For this reason, a New International Financial Architecture is the first means to regain the political scope of action of nation-states. A necessary, not a sufficient condition though.

Banco del Sur and the New Financial Architecture

The first step would be the establishment of a new development bank, which should also be a bank for a new development. The negotiations for a “Bank of the South” – today’s Banco del Sur – were initiated in February 2007 by Venezuela and Argentina, shortly followed by Bolivia. In May 2007, Ecuador, Paraguay, Brazil and Uruguay joined the talks. On December 9, 2007, the Foundational Act was signed by the seven presidents, and the official founding documents and bylaws were concluded almost two years later, on September 26, 2009 as an international treaty, waiting yet for parliamentarian ratification to actually launch the institution.


The financial base of the Banco del Sur is provided by the central banks and the governments of the member countries. Caracas, Venezuela’s capital, is the location of the bank’s headquarters, and there are branch offices in Buenos Aires, Argentina, and La Paz, Bolivia. The bank has an authorized capital of $20 billion, seven of which should be subscribed by the founding countries. Venezuela, Argentina and Brazil have each provided $2 billion, and Bolivia, Ecuador, Paraguay and Uruguay have come up with the remaining $3 billion, in accordance with their possibilities, leaving open the doors for the integration of other members.

The goal of the Banco del Sur

The Banco del Sur is closely tied to another Latin American organization, the Union of South American Nations (UNASUR or UNASUL), founded in 2008. Slightly oversimplified, one could say that Banco del Sur is the in-house bank of UNASUR.

It is possible to identify three goals for the Banco del Sur:

  • regional integration under the new notion of supranational sovereignty
  • reduction of asymmetries within and between the South American countries, and
  • financing an alternative development

The new major development priorities agreed by the seven presidents are:

  • food sovereignty
  • health sovereignty
  • energy sovereignty, and
  • sovereignty in knowledge production
  • financing adequate to the popular economy
  • deployment of physical infrastructure with continental projections

That means, on the one hand, productive investments, including support for small and medium-sized enterprises, or for infrastructural projects which promote the growing together of the continent. On the other, it means social investments, including those in education, the health system and sewage systems – more or less the opposite of what we are familiar with the old financial architecture institution (IMF, World Bank, etc). A regional system of health care prevention and certification, research and development for the neglected illness that are not profitable market for the transnational corporations, affecting basically millions of poor people, the production of generic medicines: all those projects could be developed with Banco del Sur.

The high prestige of the so-called Gas Pipeline of the South is to carry Venezuelan gas to Bolivia and Argentina. This project may provide an important impulse for further regional development, as South America has hitherto been split between importers and exporters of gas. Brazil and Chile, as importers, would like to diversify their imports, and become as independent as possible from imports from Latin American countries. But also, we have the copper to wave the grid towards the most remote zone of the continent. And also, geothermal, eolic, hydroelectric potential could be included in a continentally coherent platform of energy provision.

Food sovereignty is possible too: A regional system of virtual inventories upon the bases of a net of networks of locally managed silos and warehouses, with the participation of the local producers, in order to guarantee a strategic reserve of food for any contingency in the continent, mobilizing also peasant and indigenous productions, stabilizing crops prices, an adequate system of post-harvest management, etc.

Here, the Banco del Sur could help strengthen the material foundations for regional cooperation. The expansion of the transport infrastructure is a further goal to facilitate the massive exchange of goods, and people, for instance, with a network of railroads for the whole continent. All those projects will install science and technology at the core of the Latin American integration process.

Besides, transversal to all the examples here mentioned, Banco del Sur should have a very clear regard towards the heterogeneous inner logics of the popular economies. In addition to their privileged engagement in all the projects, it should promote a specific set of financial and non financial services tailored to the different types of non-capitalist productive units needs. The Ecuadorian Delegation has also forward a draft of Credit Manual for the future bank’s officials in order to deploy other sort of technical criteria (including the internalization of environmental and social external costs) for the formulation and evaluation of the projects to be presented to the bank.

One country – one vote

The first major difference from the western-dominated institutions, the IMF and the World Bank, is that each country has one vote, i.e. the right to vote is not determined by the amount invested in the bank. Even the Latin American Development Bank follows the undemocratic example of the Bretton Woods institutions. The goal is to implement the consensus principle as much as possible. The demand that projects with a price tag of over $70 million require a two thirds majority does not quite reflect this consensus principle, but goes a long way in that direction, although it represents a departure from the “one country – one vote” principle. Nonetheless, there are strong indications that the Banco del Sur represents a major step in the direction of democratization, since institutionalized possibilities of influence by civil society, such as a social audit mechanism, are to exist from the start.

No conditionality

Another major difference between the IMF/World Bank and the Banco del Sur lies in the type of conditionality. Banco del Sur should impose no stipulations beyond that of interest, and transparency, social and environmental standards. There are hence no disastrous stipulations such as those that the IMF often imposes, with which the EU and the USA can blow open the markets of Third World countries – with forced privatization, and the opening up of markets.

However, among the other type of conditions that Banco del Sur should push, the fight against opacity and corruption is worthy of innovative institutional challenges. For example, the Ecuadorian delegation has proposed that every company involved in contracts financed by Banco del Sur should sign a code of conduct, obliging themselves to apply and enforce social, labour, environmental, tax and transparency related standards. Another piece of institutional challenges come out of a proposed “insurance” against overpricing: Banco del Sur should only recognize in the bills the unitary cost below some statistical threshold of the market occurrences subject to citizen’s audit, in a commitment included in the mentioned code of conduct, without any consequences for the entity (national or sub-national government) beneficiary of the loan. Setting this type of practices could quickly set the standards in the “industry”.

Intellectual hegemony: Knowledge is a common good

Beside the macroeconomic, financial, institutional and political responsibilities, this new institution should assume also epistemological ones. For example, Banco del Sur would play an important role in credit and country assessment. Here, it can function as an alternative provider of market information, and thus break the quasi-monopoly of the IMF on this information. This aspect should not be underestimated, since the World Bank alone has 12,500 employees, and is thus the second largest employer in Washington DC after the US government. The scientific output of the IMF and the World Bank is an important weapon in the battle for the hegemony of neoliberal ideology. The Banco del Sur would be well advised to consider all its investigative results as a common good, and make them available in their entirety to the public – a major contrast to the Bretton Woods organizations.

Another money is possible: SUCRE in the New Financial Architecture

The second pillar of a successful regional integration of Latin America would be the introduction of the SUCRE (Unitary System of Regional Settlement, by its Spanish acronyms that also refers to our independence hero: Antonio José de Sucre) as a common system of payment. The sucre (as unit of account) is a very different construct than the neoliberal euro. However, it could be compared to the ECU system, which was a clearing house for international trade, prevented speculation and minimized currency fluctuation. The sucre is for national economies what a credit card is for private citizens: central banks open credit to other countries’ central banks in reciprocal ways. Instead of being an instrument of speculation, the sucre would rather be an instrument of sustainable transformation of national economies, and hence an instrument for national development.

The problem for the economies of the South, compared to those of Europe, is that the German mark – and now the euro – was/is internationally recognized and gladly taken in payment, which is not the case with trading partners in the countries of the South. Rather, these countries, due to their own weak currencies, are forced to interpose the purchase of dollars whenever they engage in bilateral trade. They thus burden their national budgets extremely, and lose foreign exchange that could have been used for their development. This necessarily increases the instability of the regional economic system, for in order to keep losses due to foreign exchange fluctuations as low as possible, national banks have to keep interest rates high, so that they can both fight inflation and prevent capital flight. However, high interest rates are of course poison for a developing real economy.

The sucre is designed to end this artificial demand for dollars, and to direct national resources toward domestic development. The sucre and the Bank of the South will thus help countries enhance their commercial scope of action in the macroeconomic sphere. Latin American countries alone have $550 billion in foreign exchange reserves, which are invested outside of the continent and reused in those places. At issue is hence untying themselves from the logic of the financial elite, and breaking the tyranny over the national economies of the South by means of the logic of productivity. It is important to note however, that the way the market economy is currently set up, it destroys the market as such. That is of course also a problem for the bourgeoisies, and is hence that transformative projects must bring together broad coalitions.

Besides, this system of settlements could be used fractally at the micro-regional level or in transcontinental initiatives. In Ecuador we had advanced a net of networks of popular financial structures (credit unions, savings and loans, cooperatives, communal banks, Grameen type of circles, etc) connected to the Central Bank’s electronic system of payments and had started the possibilities of their articulation with local governments and producers in order to implement local circuits of payments with a mechanism similar to SUCRE, that, once mature could be included in the regional, national and international networks, creating additional means of payments and saving hard currencies.

A similar mechanism has been proposed by Ecuador in its negotiations with the European Union, opening the opportunity of new markets, new products, new social actors, new economic logics, involved in transcontinental flows, without the strict dependency on previous dollar or euro liquidity or credit.

Fondo del Sur, to protect the other two pillars’ conquests

The third pillar is the construction of a line of defence for all these projects acting as an alternative to the IMF: the Fondo del Sur

The axis starts with the enhanced cooperation of the central banks. Upon that bases, it is possible to establish financial safety networks, directly connecting the national central banks through the electronic systems of payments, making available a technological platform for new services like a matrix of multilateral swap mechanisms among central banks (a departure from the Chiang Mai Initiative). Also, with that platform, it is easy to deploy regionally-focused markets of liquidity (both for public and private agents) in order to eliminate the stigma still pending upon some open market operations and fiscal debt issuances in the South and to recycle the massive amounts of regional savings which usually fly with low nominal returns and high risks towards financial markets that are the epicenter of the structural insolvency crisis.

The creation of new emergency credit facilities as insurance for fiscal and balance-of payments needs, with the adequate harmonization of prudential regulation in banking as well as in the financial and exchange markets, these regional arrangements could have enough power and credibility to allow for a gradual convergence towards fixed but adjustable exchange rate systems in line with the long-term equilibrium of the trade balance, isolating the effects of capital account volatility.

The scheme would include regional special drawing rights and acceptance of the principle of “lender of last resort” from a common reserve fund. For this purpose, the natural resources of Latin America could be used.

The text is based on a speech held at the second Latin America – Europe conference in Brussels in June 2010. See publication of the conference: Upsurge in Latin America – Europe on the Defensive? (2011)