Which is why "default" has to be part of the package. Devaluation without default (or "write down") simply places massive numbers of businesses and households under intolerable debt burdens...
>What is likely is "pesification" and then devaluation which would hurts small
>savers who have their savings in dollars...If you devalue and then
>dolarize you are lowering NOMINAL wages in dollars by, say, 25%??? hummm.
But devaluation gives you more competitive exports, and hence an export boom, while dollarization gives you lower domestic interest rates because financiers no longer anticipate a future devaluation...
>
>Brad, these measures could all be consider, but again, strong political
>leadership, an urgent plan to feed the poor, a minimum salary to
>household heads unemployed...
All of which need to be financed from one of three sources: hyperinflation, borrowing, or taxation. This would seem to indicate that job 1 is tax reform: collect the taxes.
>Monetary solutions, I believe, miss to
>diagnose the real problem....
Rather, there are two problems. The first is the currency board problem. Originally a mechanism to fight hyperinflation and create price stability, it has turned into a monster that squeezes exports and demands high domestic interest rates that squeeze investment, and the result is domestic depression. It is yet another example of the principle that trying in the name of preserving "credibility" to cling to policies that are intrinsically incredible creates macroeconomic disaster...
The second is the fiscal problem: how can a bureaucracy unable to cope with large-scale tax evasion and a legislature and executive unwilling to raise taxes satisfy the national demand for social democracy without generating hyperinflation? The IMF doesn't see a way without making large-scale loophole closing and better tax collection efforts a very high priority, and I think I agree...
Brad DeLong