From Financial to Climate Debt: Changing Patterns of Political Economy in Latin America

Abstract

The aim of this paper is to investigate the main theoretical paradigms underpinning the transition toward free-market economy in Latin America, and which effects they had on the development path of those countries. Furthermore, I will question the role of newer theories in environmental economics by offering an alternative perspective on the challenges and the potential of Latin American countries in the XXI century.

The first section of this paper will review in detail the main features of Latin America’s economy throughout the last quarter of the XX century. First, the period of state-led industrialization is examined, as well as the global financial environment of the 1970s: in this decade, considerable economic shocks threatened to destabilize the entire economic system. Great attention is devoted to the interrelationship between the political and economic spheres during the transition toward the neo-liberal state model. The case of Chile represented the first attempt of stabilizing the economy by embracing free-market reforms, but also a peculiar point of mismatch between the opening to liberal economic policies and the oppressiveness of the military dictatorship.

In the second section, we will look at the theoretical concepts behind those market-oriented reforms that overturned the prospect of an industrialization led by the state in favor of greater liberalization and privatization. Although the first signs of transformation appeared early in the 1970s, the 1982 Debt Crisis marked a watershed as it revealed the great vulnerability of Latin American countries relative to the volatility of both capitals and exchange rates. Thus, we will see how the major industrial countries and international financial institutions reacted to the crisis, and which strategy they formulated in order to alleviate the burden of Latin American structural problems. The last part of the section will draw conclusions from available data about the region’s development, by considering the longer-term implications that financial instability had for economic growth. By looking at the case of Bolivia, I will try to investigate the points of convergence and divergence that characterized the region as a whole.

The last section presents a critical overview on new paradigms in the study of political economy. First, I will provide insights about environmental economics by reviewing the effects of neo-liberal policies upon environmental management. Second, I will discuss the issue of the Climate Debt, and how this concept, by redefining “debt” as a systemic issue rather than a financial problem, subverts the traditional economic paradigms. Finally, we will see how Sustainable Finance may enhance the region’s capabilities in dealing with Climate Change and how it may influence the path of Latin American countries toward a sustainable economic development.