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The financial dimension of South American Integration: an assessment of the initiatives and a tentative quantification. André M. Biancareli Lecturer and researcher Institute of Economics, State University of Campinas (Brazil); CNPq researcher. Rationale and objective.
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The financial dimension of South American Integration: an assessment of the initiatives and a tentative quantification André M. Biancareli Lecturer and researcher Institute of Economics, State University of Campinas (Brazil); CNPq researcher
Rationale and objective • Among the various dimensions of regional integration process, the financial is one of the less studied. • The South American recent experience is rich in terms of institutions and ambitions, but scant attention have been paid to the quantification of financial linkages. • The main objective of the paper is to contrast the institutional side to the actual level of the financial integration process in South America. • How much financially integrated are, in fact, South American economies?
Methodology • After a short theoretical introduction, two main tasks were addressed: • A brief description of the initiatives for financial cooperation operating in the region. • Two levels: short-term and long-term financing. • A tentative quantification, by means of 3 sets of indicators: • “Official” integration indicators. • Price indicators. • Quantity indicators.
Results: Institutional framework of financial integration in South America • General impression of a diversified and adequate institutional framework, in both levels: • CCR, SML, FLAR. • CAF, FONPLATA, Banco del Sur etc. • Structure coherent with the high level of ambition presented in official rhethoric and documents • Preliminary conclusion: from the institutional perspective, the financial integration in South America is solid.
Results: “official” integration indicators • Quantification of initiative’s performance in achieving its specific integration goals. • Examples: the amount of foreign currency saved by CCR or SML; the liquidity assistance provided by FLAR; amounts and profile of CAF’s and FONPLATA’s loans etc. • In general, poor performance: • Very disappointing results of CCR and SML. • Active (but limited geographically) role of FLAR. • Increasing but insufficient disbursements by regional development banks.
Results: price indicators • Derived from the “law of one price”: • Results should be taken with caution. • Indicators (correlation and dispersion) from three sources: • Money markets; • Bond markets; • Stock markets. • Mixed results: • Low level of correlation in money markets. • High level in bond and stock markets. • Correlation or contagion?
Results: quantity indicators • Using IMF data (Current Portfolio Investment Survey) and national sources, indicators trying to quantify stocks and flows interpenetration: • Portfolio external assets and liabilities indicators; • Other external assets and liabilities (for Brazilian case). • Very low levels of integration! • The only exception is the case of Brazil’s loans and export financing, maybe signaling an important regional role played by Brazilian banks (private and state-owned). • Sharp contrast with higher levels observed in some Asian economies.
Chalenges faced • Quality and availability of data • Some theoretical doubts about indicators of financial integration • Especially price indicators • Organization of the results • Trade off information x clarity
Concluding remarks • There is a huge gap between the official intentions/institutions and the actual level of financial integration in the region. • Even the official initiatives show disappointing results (in general). • More research on the causes of these failures is needed. • These facts support the idea of a more politically-driven integration in South America. • Exactly the opposite of trends in Asia! • Given the importance of financial support to the regional integration as a whole, these results can help to address some of the weaknesses of the process.
Future steps • This is also part of a broader research project about the financial situation and integration in South America. • Other complementary studies on the issues raised here are planned. • Regarding this paper, the plans from now on are: • To finish the incomplete parts. • Incorporating the critics and suggestions. • To deepen the comparison with Asean experience (maybe in other papers). • Discussion in academic seminars already scheduled. • Submission to international academic reviews.
Results: quantity indicators, other external assets (Brazil)
