Political Economy Students' Journal

1. Introduction 

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The process of financialization occurring globally did not escape the opportunity to enter the so-called Emerging Capitalist Economies (ECE). The need to increase profits and expand markets proper to the capitalist mode of production is something that is happening now with the increasing role of financialization in the world economy. The emergence of this financial capitalism is leading to the creation of new types of dependency within countries. ECEs, due to the absence of developed financial markets, are opening their markets to the presence of foreign capital from the so-called Advanced Capitalist Economies (ACE). This phenomenon is attached to the creation of the subordinated financialization of these countries to the role of the ACEs because of their hierarchical position in the capital markets (strong currencies, developed financial markets). The results of this situation can be seen in many countries in the world, mostly in the group of ECEs. Higher volatility, orientation to short-term profits, and subordination of their currencies to the US dollar and other “strong” currencies are just some examples of the outcomes of this process in these economies, leading to export-led growth models consistent with the pattern of subordinated position already present in the global production networks. 

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In this paper, the case study of Uruguay will be analyzed, with a particular focus on the land market. This choice, besides being quite controversial due to the vision of land as a non-financial asset, can shed some light on the subordination process that most of the countries considered to be in the ECE group are facing in terms of financial and capital inflows, with the increasing presence of foreign investors seeking short-term profits and ignoring the demands of the real economy of these countries, leading to profound social and economic impacts. 

 

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2. Subordinate financialization 

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The phenomenon of subordinate financialization needs to be understood in the actual dynamics of the world economy. This process is not something that happened by chance, it is completely in line with what was already happening on the production side. The ECEs are countries that have been historically subordinated to the global patterns of capital circulation and profit realization. Most of the named Dependent Market Economies are now evolving to a new type of dependency relying now in finance. Most of these countries were encouraged to adopt an export-led growth model, heavily influenced by Washington Consensus policies, and to the extraction of raw materials and production of consumer and intermediate goods for the world economy. This orientation towards the production of these commodities is what builds the actual dependency structure now present in the financial sector. These policies, mostly under the neoclassical framework, are also changing the institutional and social structure of these countries, relying more on financial markets. A clear example of this is the emergence of private pension funds and easier access to credit in most of these countries. 

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As mentioned before, one of the main conditionalities for these countries is the importance of foreign currencies in their economies, mostly the dollar. The need of these countries for foreign reserves, to pay debt and import, is something that conditions the whole economy. It limits the ability of central and commercial banks to “create” credit, as every bank needs a huge amount of reserves, mainly in dollars, to show confidence and prove that they are solvent. 

 

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2.1 Subordinated financialization in Latin America: the case of Uruguay 

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Looking at the case of Latin American countries, we see how this process of financialization has taken different ways and tendencies within different countries. In the case of Uruguay, it is something that has been manifested in different ways. An example of this is the entrance of foreign banks into the country and their need to attract clients and deposits. These banks offer huge benefits and discounts for the users of the credit cards from banks like Itaú and Santander. This can be perceived in many supermarkets, shops and restaurants that give discounts up to 30% and even 50 % for the users of these cards. This strategy can be understood as a way to incentivize the use of credit and to attract clients from other banks such as the BROU (Banco de la República Oriental del Uruguay) which is State owned. Also, the proliferation of financial service companies such as OCA, owned by the Itaú Bank, that facilitate the access to credit creating a society more dependent on the financial sector. Related with this last example, a recent study done in the UDELAR (Universidad de la República Oriental del Uruguay) showed that almost a quarter of the Uruguayan population (800 thousand out of 3,4 million) is in situation of “default” and won't be able to pay their debt with the financial system. This headline raises the question of whether it is beneficial for the society to facilitate the access to credit, noting that most of this population relates to the people with less resources that receive subsidies from the State. 

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Taking a closer look into the data related with the financial flows in relation with exports, it can be perceived that besides following heterogeneous ways, all the Latin American countries show a heavy increase in their financial flows in the 90's, incentivized by the aforementioned Washington Consensus policies. This rise in the financial inflows in the country was rapidly halted by the financial crisis that occurred in the country in 2001-2002, and which led to the absence of reserves in the Central Bank and consequently the inability to pay dollar-denominated debt. The second peak can be understood because of 2 main reasons; the first relies on the monetary policies imposed by the ACEs to stimulate the economy after the subprime crisis. The second reason is due to the increase in the external leverage level of the Latin American economies that suffered a decrease in their economic performance and in their income in foreign currencies for exports.

 

The results of this data show what was explained before with practical examples, the increasing role of finance in Uruguay, a phenomenon that comes mostly from the outside as a natural form to adapt to the new trends in the global economy. It is interesting to note that besides being a very small country with no proper financial markets, Uruguay has followed the trends of their neighbors adapting to the “new” financial capitalism. 

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It is also important to note that the Uruguayan economy relies heavily on the dollar, being one of the Latin American countries with the biggest share of their deposits and loans in dollars (70% in deposits and 50% in credit in 2020). Besides a progressive and slow de-dollarization process after 2001, the country is in an evident situation of vulnerability related with their monetary sovereignty. This means that the country has strong limitations in monetary policy and makes Uruguay more dependent on what is going on in the world economy, with all the risks that it takes. This phenomenon of dollarization besides not being common in all the Latin American countries is something that characterizes most of their economies and has huge impacts on their economic performance, having a strong relation with the financialization process that occurred after the 70´s. The impact of the Washington Consensus on privatization and flexible capital markets is completely in line with this phenomenon, trying to seek for reserves to finance the debt crisis that the Latin American countries were facing at this time, Uruguay not being the exception. As I will show in the following section, this process led to important changes in the configuration of wealth in these countries and in the case of Uruguay it is also being transferred to the “real” economy. In this case some real estate assets such as land are also being affected by this financialization process, which can be seen in the many changes to land distribution and ownership that now characterize the Uruguayan land market. 

 

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3. When land meets finance. 

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The increasing role of finance in the global economy is also being transferred to the land market. This can be shown particularly after the financial crisis with a huge boom in the inflows of capital into agricultural real estate. This “boom” can be explained due to the need of these financial investors for a safer and more “real” asset to invest that will also lead to reducing the risk of their portfolio. Furthermore, many scholars agree that this new interest of finance in land is also related with the growth of resource scarcity and the new consumer needs of countries like China and Korea. This situation, noting that the amount of agricultural land is limited, contributes to making land a safe investment that is expected to rise in value over time. 

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This phenomenon, besides the implicit relation with financialization that it has, cannot be taken as a financialization process by itself, especially because of the double function of land as a productive and financial asset. What makes it part of it is the logic behind these land purchases, the aim of these new actors in the land markets is to achieve the financial goals of the company (short-term profits) overlooking material considerations related with the natural resources such as land or water. Another factor that links this with the process of financialization is the unprecedented amount of land that now takes part in the financial circuits after the financial crisis, helping to differentiate this phenomenon from any other historical rise in land purchases and making clear that there has been an unprecedented penetration of the finance sector in the farmland market. 

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The implications this process has in the land market can already be perceived in most capitalist economies and are marked by the land concentration and presence of foreign actors in the national economy. This situation is particularly notable in the group of ECEs due to its peripheral role in the global economy and their need and focus on attracting Foreign Direct Investment, part of the neoliberal strategy that started in the 70s. The power of decision-making of these countries regarding market dynamics has always been subordinated to the interests of the ACEs and Uruguay is no exception. 

 

3.1 A look into the Uruguayan Case. 

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Uruguay has been historically an agro-livestock based country producing commodities for the rest of the world, mostly beef, rice, soy, and milk. The large-scale ownership and low demand of workers is what characterizes this sector in the country, leading to the creation of a small group of rural population. The property regime is considered clear and socially accepted due to the lack of people involved in rural areas and the land distribution, as most of the population lives in urban areas. These characteristics consolidated Uruguay as an efficient territory for the private capital, especially after the neo-liberal reforms in the late 20th century, and this tendency has been persisting until today. This phenomenon is taking a new form in recent years due to the progressive deregulation and reconfiguration of the land market oriented to attract capital from the corporations that is leading to the concentration, foreignization and financialization processes mentioned previously. These features can shed some light on the introduction of the finance sector into the Uruguayan land market, but more data needs to be analyzed to clearly ascertain the drivers of this process. 

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If we investigate the land market in Uruguay in the last decades, we find that it is characterized by a great dynamism. In the period between 2000 and 2010 the equivalent of 39% of the agricultural area changed hands. This ended in 2019 with 8.5 million hectares sold in the market in just 20 years and 15 million hectares leased in the same period. It is important to note that this data can include pieces of land that were sold several times but what it is true is that these two decades have been decisive for the configuration of the Uruguayan land distribution. Simultaneously, on the price side it can be perceived as a huge increase in the assets and cost of leasing. The price per hectare rose almost 9 times in the studied period, and something similar happened with the rents. 

The behavior of the transactions that occurred in this period has been unequal regarding the size of the land. The productive establishments under 100 hectares disappeared, resting only 8% of what it was in 2000. On the other side, establishments bigger than 500 hectares, and particularly bigger than 2500, heavily increased. The situation led to a point where in 2011 the productive units bigger than 1000 hectares (9,3% of the total) administered 61% of the country's land. 

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This dynamism in the Uruguayan land market has been slightly reduced after the global financial crisis in absolute terms but the process of concentration has been reinforced during this time, with transactions that were mostly focused on small pieces of land. This trend of concentration of the land market in Uruguay is a phenomenon that started before the financial crisis but after the crisis it became even more intensified. It is important to note that when looking at the buyers of this land in the period between 2000-2019, 54% of the land mass was bought by Non-Physical People, mostly foreign corporations, and 8% to foreigners. There was a reduction just between 2000 and 2011 from 90% of the ownership of land by Uruguayans to less than 50% at the end of the period. This data continues to show how the configuration of land distribution and ownership has radically changed in the studied period, noting a new strong presence of the corporations in the whole territory. 

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Regarding the implementation and actors involved, it is important to note that this entire process of reconfiguration of the land ownership in Uruguay could not be done without the permission and incentives from the institutional actors. Even prior to the introduction of neoliberal policies it can already be perceived as the starting point of a structural reform creating attractive conditions for foreign capital to control large pieces of land. The role of the Uruguayan government was for this process to happen and even with the presence of left and progressivist governments in the country (such as the “Frente Amplio”) the concentration and foreignization of land continued in the same line or even intensified. There were some attempts to stop it such as restricting the access to land from these companies, but they did not last long before being forced to flexibilize land markets once more. These failed attempts to regulate the market make more evident the actual power that the national governments and institutional actors have compared with these big transnational corporations, raising the question of who controls the decision making and for who the ruling class is ruling. 

 

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4. Conclusion 

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As it has been shown, the case of the land market in Uruguay can shed some light on the implications that the financialization process is having in the configuration and the dependency of the economy of most countries in the world, with a particular focus on the ECEs. The new trends of foreignization, concentration and financialization in the farmland of Uruguay represent an important change in the wealth and land ownership that now characterize this market. The financialization of Uruguay's land market has had profound social and economic impacts. The concentration of land ownership in the hands of foreign investors has raised economic inequality and reduced the agency of local farmers. Also, the focus on short-term profits has often overlooked the needs of the real economy, leading to underinvestment in sustainable agricultural practices and rural development. This new “logic” of financialization has created the mentioned profound changes in the entire economy led by the consecration of transnational corporations as the new main actor in the Uruguayan land market. These transnational enterprises with capital from different parts of the world such as Finland, Sweden or Chile are strictly linked with the financial global capital and now and since the 90's are one of the most important agents for the government and other institutional actors to consider when making policy. Their actual position in the decision-making process of the country has been a consequence of the policies implemented by these actors that now are not able to re-regulate the situation. The desired economic development and growth was achieved, but at what cost? 

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The cost can be summarized in the reconfiguration of the whole economy to be even more dependent and subordinated to the world economy, creating a structural dependency even bigger than it was with the group of ACEs. The whole economy has been re-primarized and the control and sovereignty of the natural resources of the country are no longer in the hands of the Uruguayan population. This situation creates two levels of asymmetry, first within the country due to the rising economic inequality and the power that these companies have in the decision making process compared with the “people”, and then comparing the country with the rest of the globe as the position of subordination has been reinforced. 

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The actual panorama of Uruguay only shows what is already happening in many other countries in the world, in this case with the land and with the extraction of natural resources. The figure of the transnational corporation has come to stay, and their rising power has led to a point where these transnational companies can be considered even more important than many political figures and, in some cases, than the government. What makes this even more absurd is that this situation is a consequence of the bad practices and neo-liberal policies implemented by these national and international institutional actors that now see their decisions relegated to the interest and wills of these companies, Uruguay being another example of it. The sovereignty and decision-making of these countries has been transferred to the headquarters of these companies, mainly in the ACEs, and the Uruguayans are even less the owners of their destiny than they were before. 

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There is still a lack of research into the implications that financialization has caused in the ECEs, particularly in small countries like Uruguay, and more research needs to be done in this direction. The sovereignty of small countries in the global south tends to be very low when the decisions could affect anything related with these transnational companies. The uncertainty regarding future challenges, including potential climate emergencies, emphasize the importance of understanding how these new financial elites, who now control significant portions of the world's commodified natural resources, will respond. Given their historical focus on profit over public interest, it does not seem that something is going to change. Only time will reveal the full impact of these developments on the global economy and society, but for now the focus should be on what is already happening, which in cases like this is having devastating results. 

 

5. References 

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Garcia-Arias, J.; Cibils, A.; Costantino, A.; Fernandes, V.B.; Fernández-Huerga, E. When Land Meets Finance in Latin America: Some Intersections between Financialization and Land Grabbing in Argentina and Brazil. Sustainability 2021, 13, 8084. https://doi.org/10.3390/su13148084 

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Díaz, I, Sum, T and Achkar, M. 2023. Territorialización de las Sociedades Anónimas (SA) en Uruguay: Acaparamiento y Extranjerización de Tierras. Iberoamericana – Nordic Journal of Latin American and Caribbean Studies, 52(1): 88–102. DOI: https://doi.org/10.16993/ iberoamericana.575 

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Bonizzi, Bruno & Kaltenbrunner, Annina & Powell, Jeffrey, 2019. "Subordinate financialization in emerging capitalist economies," Greenwich Papers in Political Economy 23044, University of Greenwich, Greenwich Political Economy Research Centre. 

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Piñeiro, D. E. (2012). Land grabbing: concentration and “foreignisation” of land in Uruguay. Canadian Journal of Development Studies / Revue Canadienne d’études Du Développement, 33(4), 471–489. 

https://doi.org/10.1080/02255189.2012.746216 

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Madeleine Fairbairn (2014) ‘Like gold with yield’: evolving intersections between farmland and finance, The Journal of Peasant Studies, 41:5, 777-795, DOI: 10.1080/03066150.2013.873977 

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Malic, E., & Santarcángelo, J. (2022). Financiarización subordinada en América Latina: dolarización, endeudamiento externo e internacionalización de la riqueza. El Trimestre Económico, 89(356), 1033–1065. 

https://doi.org/10.20430/ete.v89i356.1588 

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Cardozo F. (2024) Alertan que 800 mil uruguayos están en situación de "default" por endeudamiento financiero. Ámbito. 

https://www.ambito.com/uruguay/alertan-que-800-mil-os-estan-situacion default-endeudamiento-financiero-n6004643