International Financialization and the Systemic Approach to International Financing for Development

International Financialization and the Systemic Approach to International Financ

This article is divided into three parts. The first section analyzes some narratives of international financialization and shows how the most relevant element of this process from the developing world's perspective (i.e. international financial liberalization) has generated significant costs for all of these economies. The second section analyzes why the element that would theoretically provide the most important advantage in terms of international financialization for the developing world (i.e. the establishment of a substantial, stable and predictable system of financing for development) has not been put into practice. Finally, the article analyzes the connection between the two issues (international financialization and international financing for development) in the context of a center–periphery financialization model, and establishes the need for its wholesale reform. This article goes on to propose the modification of some of the central elements of the international financialization process in the dimension most closely linked to development, and the adoption of a systemic approach to international financing for development (SAIFfD).

Policy Implications

  • International financialization (and, more specifically, international financial liberalization – its key element from the developing world’s perspective) has not brought with it all the benefits expected by its proponents, but has generated significant costs to developing economies. International economic and financial institutions and developed countries should reflect on the net result of the process and cease to support (and impose) its indiscriminate, generalized and dysfunctional application in the developing world (and also, quite likely, in the developed world).
  • Developed countries should modify, in a coordinated way, the system of international financing for development, a basic element of the post-2015 agenda, by adopting a new systemic (holistic) approach. That is, ad hoc reforms to the volume and destination of aid or the (procyclical) flows of private capital, the partial (non)resolution of foreign debt, progress towards the simple ‘sacralization’ of efficiency considerations, the implementation of marginal or anecdotal instruments of innovative financing or reinforcing public–private partnerships, considered separately, will not be able to generate a stable, large, predictable and high-quality development financing system.
  • Increasing official development assistance, distributing the costs of foreign debt, promoting stable capital flows, regulating and discouraging short-term speculative capital flows, struggling against tax havens and, more generally, reversing the center–periphery financialization process are all indispensable elements that should be introduced by actors involved in the design of the post-2015 development agenda if a credible, fair, coherent and efficient agenda is truly desired.
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