Re: Incomes and Exchange rates; part 2

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

John,

The point here is not the actual inflation rate, but argentines'
expectations. Some people still believes the government can spend
without control and that there won't be any consequences.

Even though the Central Bank has been pratising an independant
monetary policy there's still a lot of political pressure. There's a
strong monetary discipline enfforced through the fx exchange rate and
currency board system, but the fiscal discipline is very weak. Given
the economic settings a lot of expenditures from the government can
throw us into big trouble. There are some signs of increase in our
debt (the international liquidity has helped a lot to increase our
external debt) and it could cause problems with our external
accounts. That means a lot of problems in a fx exchange rate system.

 When I say "we" I'm refering to argentines in general but my
opinions aren't shared by everybody.


All the ideas expressed above represent my own opinion. They
shouldn't be taken as expressing Mecon's opinions.

Laura

> After a brief look at the mecon web pages, I find it difficult to allow
> a label of "high inflation country" to be applied to present day
> Argentina, despite its recent past.
>
> I can also understand temporarily using the U.S. currency as a standard
> of value, but with the performance you're getting from your new economic
> policies, I suspect you will soon realize the undesirability of
> accepting the U.S. rate of inflation as part of you standard of value
> since it is out of your control. I only wish we could get a monetary
> policy similar to this that I copied from mecon Economic Update --
>
>  "In 1992 approval was given to a revised Charter for the
>  Central Bank that confirmed its independence from other
>  branches of the State. In addition it established that
>  the basic mission of the Bank is to preserve the value of
>  the currency, eliminating its ability to generate quasi-
>  fiscal deficits, severely limiting its ability to grant
>  rediscounts to financial entities, preventing it from
>  granting short-term facilities and curtailing its
>  government security purchasing activities. As a result the
>  Government is required to finance its activities by means
>  of genuine resources, keeping monetary policy separate
>  from fiscal policy."
>
> U.S. monetary policy still dictates the unattainable task of affecting
> employment instead of doing only what it can do well. [Maintaining the
> value of the currency as your above directive to "preserve the value of
> the currency, ..."] so clearly states.
>
> With the success you have been having, why would you want a gold
> standard. I can only hope our government adopts such a sensible
> approach.
>
> Above you write "we." Out of curiosity, are you speaking we as in
> Argentines or we as mecon?
>