Financial openness: The experience of Argentina, Brazil and Mexico

This article seeks to analyse the effects of globalization on the financial systems of Argentina, Brazil and Mexico, which were the countries that received most of the foreign investment in the region in the 1990s. This capital was mostly made up of portfolio flows and investments in shares traded on the local financial systems. The movement was not homogeneous in all the countries, because of their different degrees of openness and differences in macroeconomic policies. In the case of the portfolio investments, the effects of the openness were concentrated in different segments and they therefore had different impacts on the financial systems in question. The recent experience of these countries shows that there is still some room for national economic policies to take action in the context of financial globalization, even though their capacity to reduce the perverse effects of financial flows is limited. Foreign firms are observed to be assuming growing importance in the countries studied, as a function of the degree of openness of the local financial systems. This tendency is due to the liberalization measures adopted in order to make possible capitalization of the banking systems and competition among banks to find new sources of profits and strengthen their position in globalized markets. Although the predominance of foreign companies has given a more solid capital base to the national banking systems, it could have an adverse macro- economic impact, especially in Mexico and Brazil, which still maintain relatively independent monetary policies.