This just in:
<blockquote><http://www.venezuelanalysis.com/news.php?newsno=2098> Venezuelan Currency Not to be Devalued in 2007 Saturday, Oct 07, 2006 By: Steven Mather - Venezuelanalysis.com
. . . . . . . . . . . . . . . . . . . .
This high level spending inevitably affects the inflation rate, which is currently at 12.5% and which could be as high as 15% by December 31, the highest rate among Latin America's larger economies, despite currency, price, and interest rate controls that have been in place since 2003.</blockquote>
<blockquote><http://today.reuters.com/news/articleinvesting.aspx?type=economicNews&storyID=2006-09-22T131558Z_01_N22471022_RTRIDST_0_ECONOMY-VENEZUELA-INFLATION-UPDATE-1.XML> UPDATE 1-Venezuela forecasts 2006 inflation of about 12 pct Fri Sep 22, 2006 9:15 AM ET
CARACAS, Venezuela, Sept 22 (Reuters) - Venezuela will post inflation of around 12 percent in 2006, an official said on Friday, as spending power in the world's No. 5 crude producer is boosted by bumper oil earnings.
Inflation in the 12 months to August was reported at 14.9 percent, unchanged from the same period a year earlier.
"We should come to finish the year within our target of about 12 percent," Rudolf Romer, director of public credit at the finance ministry, told a conference.</blockquote>
On the other hand, you can take Lula's route:
run a big budget surplus: "The budget surplus before interest payments, or primary surplus, widened to its biggest in four months to 13.2 billion reais in August from 5.62 billion reais in July" (Fabio Alves, "Brazilian Government Budget Gap Narrows in August (Update2)," <http://www.bloomberg.com/apps/news?pid=20601086&sid=agYMstLcWW.g&refer=news>);
and
bring down inflation: "In its quarterly inflation report, the bank reduced its 2006 inflation forecast to 3.4 percent from 3.8 percent, while it raised its 2007 projection to 4.3 percent from 4.2 percent" (Elzio Barreto, "UPDATE 2-Brazil's Central Bank Sees Slower 2006 Inflation," 28 September 2006 <http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2006-09-28T150341Z_01_N28180872_RTRIDST_0_ECONOMY-BRAZIL-INFLATION-UPDATE-2.XML>).
But that, too, creates discontent sizable enough to make reelection difficult.
Seriously, what's the right fiscal and monetary policy in Iran and Venezuela?
> Like many oil producers, Iran is woefully
> underindustrialized. Here's the manufacturing share of value added
> for some interesting countries (from the World Bank, most recent year
> available, mostly 2003-4):
>
> Chile 17.62
> Iran, Islamic Rep. 10.38
> Korea, Rep. 28.74
> Low & middle income 17.04
> South Africa 19.05
> United States 14.93
>
> Iran's figure has been declining in recent years, too.
South Korea, imho, is in a different league than Chile, Iran, and South Africa.
Maybe I'm looking at a different data series than yours, but Chile and South Africa don't look like industrial giants either:
Chile
Series 2000 2001 2002 2003 2004 2005 Agriculture, value added (% of GDP) 6 5 6 6 6 6 Gross capital formation (% of GDP) 22 22 22 22 21 23 Industry, value added (% of GDP) 38 39 40 41 45 47 Services, etc., value added (% of GDP) 55 55 55 53 50 48
Iran
Series 2000 2001 2002 2003 2004 2005 Agriculture, value added (% of GDP) 14 13 12 11 11 10 Gross capital formation (% of GDP) 33 35 40 41 37 32 Industry, value added (% of GDP) 37 36 40 41 42 44 Services, etc., value added (% of GDP) 50 52 48 48 48 46
South Africa
Series 2000 2001 2002 2003 2004 2005 Agriculture, value added (% of GDP) 3 4 4 4 3 3 Gross capital formation (% of GDP) 16 15 16 17 18 18 Industry, value added (% of GDP) 32 32 33 32 31 31 Services, etc., value added (% of GDP) 65 64 63 65 66 66
<http://devdata.worldbank.org/data-query/>
> Inflationist populist policies try to squeeze more out of the
> productive sector than it can deliver, and the response is rising
> prices. The IMF's advice that you cite is, of course, to tighten up
> monetary and fiscal policy; the word "manufacturing" doesn't even
> appear in the staff report you cite. But a more sensible long-term
> policy would be to use the oil revenues to finance industrialization
> - not subsidizing gas so it costs pennies a gallon.
Why not tell the same to our man in Venezuela?
<blockquote><http://www.msnbc.msn.com/id/11669218/> Energy crisis? Not in gas-guzzling Venezuela World's lowest prices spur praise, problems; Chavez vows to keep it cheap
Reuters Updated: 4:24 p.m. ET May 10, 2006
CARACAS, Venezuela - Taxi driver Jaime Tinoco works the streets of Caracas in a 1976 Chevy Nova that guzzles 19 gallons of gas a day. But he doesn't worry about fuel efficiency — filling his tank costs just $2.30.
While U.S. consumers struggle with soaring energy prices, Venezuela's gas is now the world's cheapest at 12 cents a gallon, and Washington's regional foe, President Hugo Chavez, vows to maintain subsidies that keep fuel dirt-cheap.</blockquote>
Gasoline and other fuel subsidies are common throughout the developing world, even among net energy importers: "A major study carried out by the World Bank in 1997 put fossil-fuel consumption subsidies alone at $48 billion in twenty of the largest countries outside the OECD and $10 billion in the OECD. The 1999 World Energy Outlook, which examined eight of the largest non-OECD countries 3 covering almost 60% of total non-OECD energy demand, put the total value of energy subsidies in those countries – as measured by the difference between actual and estimated market prices – at around $95 billion. The bulk of these subsidies went to electricity and coal. End-use prices were found to be on average about one-fifth below market levels in those countries" (International Energy Agency, "Carrots and Sticks: Taxing and Subsidizing Energy," <http://www.iea.org/textbase/papers/2006/oil_subsidies.pdf>).
One of the reasons that they subsidize energy consumption from coal to gasoline to electricity is that without such subsidies domestic markets for not only end-user energy products but also all other products that depend on cheap energy in production, distribution, and consumption would be smaller.
It's also political: once people get used to end-user fuel subsidies, it is very difficult to cut them, for cutting them can spark a political upheaval, especially in that the owners and workers of the transportation sector have the power to really rock their country if they choose.
In any case, do you think you can do a better job of industrializing Iran or Venezuela than their respective government have? If so, how? What would you advise them to do?
> > I'd recommend that the President of Iran look into employing the means
> > for price control used by the US government during the New Deal:
>
> That example is from the middle of World War II, not the New Deal. It
> was also a time when the U.S. had a substantial industrial apparatus
> that was being run at more than full tilt. Price controls can't
> address long-term imbalances of the Iranian sort for any length of time.
Price control throgh popular participation can still be a political tool for popular mobilization. -- Yoshie <http://montages.blogspot.com/> <http://mrzine.org> <http://monthlyreview.org/>