RE: Incomes and Exchange rates; part 2

["Leticia Arroyo Abad" <asecon@xxxxxxxxxxxxxx>]

----------
> 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?
> >
John:

Neither the government nor argentine people are capable of leaving this fx
exchange system. Take as an example, now we are in political times and the
opposition's proposals don't point out this fact to be changed (at least in
medium run).  Besides, there has been a wide discussion in this topic, and
no conclusive effects. In july 1996, the economy minister "left" and it was
replaced by a "chicago" boy, we were quite suspicious about this and the
maintance of the $1=u$s1 but nothing happened. Although this might be
understood as a sign of confidence, I don't we are matured enough to leave
this system. Dollar parity is our economic religion right now and thanks to
this we can think of future growth. It is true that US inflation is higher
that ours, and this impacts on our performance, especially in privatized
public services fees that are updated by US CPI.  This is the price we have
to pay in order to keep our economy stable.

Lety