Financial instability in peripheral economies: an approach from the balance-of-payments constraint

The accumulation regime of Latin American countries is characterized by a structural heterogeneity that gives rise to constant balance-of-payment problems. The need to finance trade deficits can lead to an unstable financing path as foreign investment and external indebtedness generate new foreign currency requirements in the medium term due to profit remittance, interest payment and the reversal of these flows when profit possibilities are extinguished, thus originating continuous and growing dollar outflows. From a Minsky-inspired analytical perspective, the aims of this paper are to analyze the financial fragility of the peripheral economies as one further characteristic of the problems of external restriction and to discuss that a development strategy should contemplate not only a productive but also a financial program. We propose an analysis of the degree of financial instability through indicators obtained from the balance of payments statistics. We analyze the cases of Argentina and Brazil to identify some stylized facts about financial instability in these countries over the past four decades.