With the spotlight constantly held on the biggest players in the American sphere it can be easy to overlook smaller South American nations with significant regional influence such as the state of Chile. This year the Warwick Economics Summit had the honour to welcome Professor Andrés Velasco, who has served as Finance Minister of Chile, and is today the Dean of LSE’s ‘School of Public Policy’. In his speech to our delegates, Prof. Velasco tackled complex issues like economic and political populism and identity politics in today’s world. I had the privilege to interview Professor Velasco and gain his insights on pressing issues, on behalf of the Summit.
During our interview, Prof. Velasco was extremely accommodating even when prodded on potentially sensitive issues: when I asked him on the ongoing trade war between China and the US he made his dissent clear. He fears that these “economic tensions” might escalate, and asserted that the real danger is the potential destabilization of the financial market as a whole.
However, he also pointed out a potential silver lining for South America. “Paradoxically, there could be some short term gains” from the US-China trade-war in the form of a “substitution effect”. If China stops buying soy from the US as price hikes make it too expensive, Brazilian soy becomes more competitive, and this effect might kick in for other goods as well."
We then moved on to discuss the South American financial system: its unique dependency on foreign capital and the structural reforms he sees as necessary to strengthen it.
Prof. Velasco agreed that reliance on foreign investments made the South American financial system exposed to volatility and called for local and international reforms to aid it. Rigorous bank regulations are needed, especially in the monitoring of non-bank financial activities. He also added that while floating exchange rates did help with stabilization mechanisms, “it is not a panacea” and “even if countries are cautious and vigilant it is not enough”.
What Prof. Velasco really calls for is a bettered international financial safety net: there should be more money available from institutions such as the IMF to save countries from economic disasters, and what we have today is in his eyes “too small and too slow for comfort”.
He pointed out that this revised and expanded safety net could be used in Venezuela’s case. It became obvious at this point in our interview that he supports Juan Guaidò as the legitimate president of Venezuela, condemning Maduro’s policies.
Andrés Velasco holds that the country is a prime example of systematic destruction by a government of their domestic economy: “now, to get out of that hole, Venezuela will need international assistance, and some of that bridging finance will have to come from institutions like the IMF. ”
Prof. Velasco made no attempt to remain neutral throughout our interview, and was not afraid to take sides. Nevertheless, he retained a basis of analysis that gave his comments depth whilst not depriving them of their initial sentiment. At a time of political turmoil, his reflection of the importance of international institutions like the IMF in safeguarding countries from economic disaster and providing a critical safety-net, was deeply illuminating.
We were left spellbound by Prof. Velasco’s powers of oratory during his speech and interview, and were privileged to welcome him to the Warwick Economics Summit 2019.
Edited by: Thomas Kurian