Finance Capital and the Nature of Capitalism in India Today C.P. Chandrasekhar

A distinctive feature of the current phase of capitalism is the growing role of finance capital as an instrument to establish capitalist hegemony and facilitate the appropriation of surplus. In the developed countries this transition towards financial hegemony was the result of the inflationary crisis and stagnation that affected the OECD countries after the late 1960s. The contractionary fiscal and monetary policy response to inflation intensified the deceleration in real growth. This together with the low real interest rates on bank deposits adversely affected banking business and profits. These developments triggered a process of deregulation and liberalisation in the financial…

Financial Strains in the “New” China C.P. Chandrasekhar

Early in March, the largest private steel producer in China, Shanxi Haixin Iron and Steel Group, defaulted on loans from Minsheng Bank estimated at 20 billion yuan ($3.57 billion) that had fallen due. This set off one more spurt of speculation on whether we are seeing the beginning of the end of the Chinese ‘growth miracle’, precipitated by an internal meltdown of the financial sector. The international financial media is replete with stories on the fragile foundations of China’s rapidly built edifice of bond-based debt and the possibilities of a crisis. There are a number of reasons why an event…

Rigging for Profit C.P. Chandrasekhar

In a process that began almost six months back, the world’s leading banks are under scrutiny for rigging a benchmark variable that influences the returns earned by a range of investors. The latter include investors such as pension funds managing the savings of ordinary workers. Agents converting currencies to pay for purchases or invest in assets denominated in currencies other than their own, need to have a relative value (say, Rs.60 to the dollar) to go by. In practice, foreign exchange transactions are undertaken at rates linked to “fixes” that are supposed to reflect the exchange rates at which actual…

Poor empiricism: The ‘Middle Income Trap’ C.P. Chandrasekhar

Increasing evidence that the era of high growth in Asia may be nearing its end has triggered speculation on ways to revive growth in the region. It has also challenged the belief that more developing countries would like the first generation new industrialisers in Asia (South Korea, Singapore, Taiwan and Hong Kong) transit to developed country status in a relatively short period of time. This has spawned a new industry involving the use of multi-country, inter-temporal GDP numbers to identify the countries that have escaped being stuck in the so-called “middle income trap” and the lessons that can be learned…

India and the Credit Rating Agencies Jayati Ghosh

The recent downgrade of India as a sovereign borrower by the US-based Fitch has come close on the heels of similar downgrades and placing on “negative watch” by the other big two international credit rating agencies. In April, Standard and Poor’s had lowered India's rating outlook from “stable” to “negative”, and June it warned that India become the first “fallen angel” among the BRICS nations to get a sovereign credit rating below investment grade. These moves have created hysteria in much of the media and near panic in official circles. The domestic financial press, being more susceptible to external perceptions…

Fiscal Policy Evolution and Distributional Implications: The Indonesian experience Smitha Francis

[Working Paper No. 01/2012] This paper analyses Indonesia's resource mobilisation and public expenditure policies against the backdrop of her inequality trends and macroeconomic policy evolution. It is argued that the country's fiscal policy stance has been adversely impacted by her monetary and financial sector policies under an open capital account, with attendant regressive distributional implications. Juxtaposing the analysis of revenue mobilisation trends and taxation policies with the evidence of increasing asset and land concentration and persisting high inequalities reveals that the increase in income tax revenue did not necessarily come from the upper income profiles or corporate profits. Meanwhile, although…

How the Full Opening of the Capital Account to Highly Liquid Financial Markets Led Latin America to Two and a Half Cycles of ‘Mania, Panic and Crash’ José Gabriel Palma

Latin America has recently experienced three cycles of capital inflows, the first two ending in major financial crises. The author analyses the dynamics of the second cycle — from the 1989 ‘Brady-bonds agreement’ to the Argentinian 2001/2002 crisis (and 9/11). It is argued that these financial crises took place mostly due to factors that were intrinsic to the workings of over-liquid and under-regulated financial markets — and as such, they were both fully deserved and fairly predictable. In short, these crises point not just to major market failures, but to a systemic market failure. mania_panic_crash (Download the full text in…

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