Re: Incomes and Exchange rates; part 2

["Maria Laura Segura" <msegur@xxxxxxxx>]

Leigh,

The Peso has been tied to and at par with the US dollar since 1991,
it was necessary to do this to give a clear signal of what was
intended to do with our economy.

The inflation rate has been falling since then, in the last years the
inflation was less than 3%  per year, but as Juan José will say we
had a huge recession during 1995 and until August 1996. These days
things are looking a lot better, the growth rate is expected to be
around 7%.

One of the most conflictive effects of the economic changes is that
the society is in constant change. There is less people below the
line of poverty but there is a lot of people who was middle class and
has seen a big reduction of income. There seems to be a lot of people
getting around the line of poverty.  There's also a kind of
demonstration effect, when we had a closed economy there were lots of
things we couldn't afford, it was impossible. In an open economy
there are lots of things we'd like to afford and it's not so easy to
do.
The main objective now is to generate growth while avoiding bad
secondary effects on society.
> Laura
>
> Is it true that the Argentine Peso is tied to and at par with the US dollar
> and has been for a number of years?
>
> Has inflation been less than 2% for 3 years?
>
> And is the projected real rate of economic growth for 1997 greater than 7%?
>
> Regards
>
>
> Leigh
>
>
>
> At 03:16 PM 17/9/97 +0000, you wrote:
> >John,
> >
> >
> >> No. I am speaking only of an angered populace like those who deposed
> >> Ceaucescu [Sp?] and the marching mothers of Argentina who aroused enough
> >> sympathy to get action. [They did, didn't they?]
> >
> >I'd like to tell you a few things about popular movements in my
> >country (Argentina). The marching mothers of Plaza de Mayo had
> >nothing to do with the changes in our economy. In fact, no organized
> >group had to do with it. If things have changed here, it's due to the
> >hyperinflation. Only after having 289% of inflation in a month, we
> >realized things had to change. It were the supermarkets ransacking
> >that showed us we couldn't live with such a high inflation. For the
> >first time in decades, we changed governments in a legal and
> >organized way. A democratic president left government 6 months
> >earlier than expected and another democratically chosen president
> >came into office. There was no revolution in the streets, the
> >revolution was in our minds.
> >
> >
> >>
> >> > I agree with you that the backing is a virtual insurance, it's
> >> > just a promise of well behaviour and only if the governments acts
> >> > correspondence with its promise the mechanism will work. You said
> >> > that vigilance is necessary and having a fixed exchange rate and
> >> > a fixed convertion rate makes the vigilance easier.
> >>
> >> Yes. My preference for a measure like the CPI as the standard has the
> >> same "virtuality" as a gold standard, but it has the advantages of:
> >>
> >> 1) It consists of enough variety to prevent the government from creating
> >> an appearance of a stable currency without an actuality of same. With
> >> gold as the standard a government can set the price high enough to be
> >> certain that at least some of the supply is surrendered to the
> >> government to be held in idle storage rather than meeting some other
> >> demand. Inflation can then rage on until it reaches a point of
> >> insufficient supply at the "official" price to leave a respectable
> >> quantity in government vaults. Then the government either devalues the
> >> currency or [as Nixon did in the U.S.] close the gold window and let the
> >> currency float.
> >>
> >> 2) It most nearly reflects the actual value in use for exchanges.
> >>
> >> 3) It is [At least in the U.S.] the measure most used for contract
> >> adjustments that are of sufficient duration for inflation to be of
> >> concern.
> >
> >
> >Using a CPI as standard works well in a low inflation country. But
> >when you're trying to  keep stable the value of the currency in a
> >high inflation country or in country with very recent inflationary
> >memory, it doesn't work at all.  Your third remark helps me to prove
> >my point, you're thinking on the basis of an economy were inflation
> >is eventually of concern and you'll eventually adjust contracts. When
> >there's high inflation eventuality happens everyday.
> >In your first remark you suggested a goverment devaluation or
> >changing into a free float  after getting enoug gold in its vaults.
> >The virtue of the gold standard or any other commodity backing is
> >that it gives a clear signal to people. If the government devaluates
> >or changes into a free float it destroys the confidence that might
> >have generated. The gold standard is a symbol, it represents a
> >promise given by the government.  It gives people the possibility of
> >protecting themselves, in case currency loses value, by converting
> >the currency.
> >
> >
> >Laura
> >
> >
> ______________________________________________________________________
> Leigh Harkness                                      leigh@xxxxxxxxxxx
>
>
>
>