Financial Liberalization in Brazil and Argentina

Debating the results of financial liberalization processes in countries like Brazil or Argentina is not an easy task. Except in the improbable world of textbooks, a financial liberalization process rarely comes alone. Practically everywhere, it was implemented as an element of a much wider liberalization strategy that touched a large numbers of sectors of the economy more or less simultaneously. Its effects are hard to isolate from the impacts caused by other liberalization processes or even from the general change in world view that gave it its initial push. In addition, as Stallings and Studart (2006) warn us, the concept usually conflates two different, although to some extent interdependent, processes. On the one hand, a large part of the literature takes it to mean the process of domestic financial liberalization through which the burden of regulation over domestic financial institutions and markets is alleviated. Ceilings on interest rates are eliminated, forced market segmentation is attenuated, strict rules of behaviour for institutions are softened or have their nature transformed, financial supervisors as well as monetary policy makers adopt market-friendly instruments to implement decisions. All these changes are elements of the liberal approach according to which government policy has to act through incentives to desired private action, not through proscription of undesired behaviours.