Financialization of the peripheral state and the role of sovereign debt hierarchies: the Brazilian case

This paper investigates state financialization, emphasizing the central role that sovereign debt plays in shaping it, mainly through its unique characteristics in peripheral economies. While the state actively fosters financial market development and relies on it for economic policy execution, it also empowers these markets in disciplining the state toward neoliberal policies. In peripheral states, financialization is deeply shaped by currency and sovereign debt international hierarchies. This mutual dependence creates a contradiction: financial deepening provides risk management tools but simultaneously strengthens global financial hierarchies. The argument is illustrated by analyzing the case of Brazil, evidencing how the Brazilian Central Bank and Treasury became entangled with financial markets by managing the additional risks attributed to its currency and sovereign debt. Conversely, this pattern of governance facilitated new forms of external vulnerability. After the reversion of the financial cycle in 2013, it empowered financial markets in disciplining the Brazilian state toward the deepening of the neoliberal agenda.