Date: Tue, 20 Jul 1999 21:06:52 -0300 From: Juan Jose Barrios <jota at netgate.com>
Doug Henwood wrote:
> Oh yes, the present crisis in Argentina, with its much touted
> currency board (i.e., effective dollarization), is a good negative
> example of the relationship between a currency's value and national
> productivity levels. Argentine industry is just no match for the
> U.S., but it's adopted the U.S. currency as its standard. The effect
> of this is to make Argentine products progressively more expensive on
> world markets. Without the dollar peg, the Argentine peso would sink
> in value if it were freely traded. With the dollar peg, the country
> doesn't have the outlet of devaluation, so it's got a nasty recession
> instead. And because the Argentine central bank can't lower rates and
> pump liquidity, it's powerless to fight the recession.
Argentineans hoped to make lots of money thru privatizations and thus compensate for that loss of competitiveness and pay for the deficits. It has not worked out. But the analysis is not so simple. On the one hand, Argentina has had one of the most corrupt governments in human history. It is yet to be evaluated if privatization has done any good on this issue, which was one of the key argumentes for privatizing (besides the old efficiency stuff). I guess it will not work, private companies are not necessarily less corrupt than public companies, although sometimes more efficient.
On the other hand, people under poverty have increased dramatically. Unemployment is way high. In sum, there is social caos. Last week, truck drivers went on strike because the government wanted them to pay a tax on their trucks to collect money to pay for teachers' salaries.....
As long as inflation and free capital markets remain the only objectives economists have in mind, we cannot expect the world to overcome more frequent financial and social crisis.
>
> As someone put it at a recent IMF forum, Argentina looked to the
> currency board as an attempt to buy "credibility in a bottle." That's
> appropriate in a world where everyone seems to think that finance
> comes first and the real sector is an afterthought. But things don't
> work that way.
>
This is not 100% true, but there is something to it. Withouth
credibility, there are no financial markets and no development finance,
so it goes....
> Doug
ps: what made you post your comment? Any article, the IMF?