Abstract
After years of placing faith in the markets, we are seeing a revival of interest in statist economic policy across the world, particularly with regards to finance. How much policy space do previously liberalized developing countries still have to renationalize their financial sectors by exerting direct control over the process of credit allocation, despite the constraints posed by economic globalization? Under what conditions do they actually use this policy space? Bolivia is an especially important case because it is one of the few peripheral countries that implemented strongly interventionist financial reform in the 2010s. Using Bolivia as a least likely case, I argue that two factors, increased availability of external financing sources, and domestic popular mobilization, create favorable conditions for developmentalist financial reform because these make it possible to reduce external conditionalities and overcome opposition by the domestic financial sector. Popular mobilizations paved the way for reform by bringing developmentalist policymakers to power and exerting pressure on them to 1. Maximize policy space by diversifying into newly available alternative sources of foreign borrowing to reduce external conditionalities, and 2. Mitigate the importance of disinvestment threats by domestic economic elites by incrementally increasing public ownership and control of the economy.
Highlights
IntroductionDevelopmentalist or activist financial policies entailing state intervention to allocate credit to strategic sectors, through tools such as interest rate controls, lending quotas, or state-owned banks, were a critical component of industrial policy and political control in postwar developmental states (Amsden, 1992). Since most developing countries have deregulated domestic finance, opened their capital accounts to international financial flows, surrendering credit allocation decisions to private banks, and by and large, moved away from statist models characterized by heavy public ownership and government planning, often under Structural Adjustment Program conditionalities of their external creditors, the IMF and World Bank
How much policy space do previously liberalized developing countries still have to renationalize their financial sectors by exerting direct control over the process of credit allocation, despite the constraints posed by economic globalization? Under what conditions do they use this policy space? Bolivia is an especially important case because it is one of the few peripheral countries that implemented strongly interventionist financial reform in the 2010s
Bolivia benefitted from two factors, which enabled it to increase external policy space and reduce domestic business power to re-assert state control over a previously liberalized financial sector, despite the opposition of both the IMF and domestic business: plentiful external finance and domestic popular mobilization
Summary
Developmentalist or activist financial policies entailing state intervention to allocate credit to strategic sectors, through tools such as interest rate controls, lending quotas, or state-owned banks, were a critical component of industrial policy and political control in postwar developmental states (Amsden, 1992). Since most developing countries have deregulated domestic finance, opened their capital accounts to international financial flows, surrendering credit allocation decisions to private banks, and by and large, moved away from statist models characterized by heavy public ownership and government planning, often under Structural Adjustment Program conditionalities of their external creditors, the IMF and World Bank. In period 1, increased availability of low conditionality sources of external finance from the early 2000s opened up potential policy space for Bolivian policymakers, but because private business elites had strong instrumental and structural power over the government, policymakers did not translate this into actual policy space by diversifying external finance sources to reduce conditionality, nor were they interested in financial. During this period domestic business was both structurally and instrumentally powerful, and despite an increase in popular mobilization resulting in electoral gains for the left-wing developmentalist MAS party, a pro-market coalition continued to dominate the state apparatus In this context, despite the commodity boom increasing potential policy space, the government did not diversify its financing sources, and developmentalist financial reform was not implemented despite calls for intervention. Establishes a Financial Stability board which regulates: 1. Interest rates including lending caps and deposit floor
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