Re: Argentina and free trade

[Alan Cibils <abcibils@xxxxxxxxx>]

Some of the problems in Argentina today:

1) Re. utilities: yes, the privatization contracts guaranteed the
purchasing companies a certain level of fees in dollars. Not only that, but
these are indexed by US inflation. This has led to the result that amid
generalized domestic price deflation over the last 3 years, utilities
prices have gone up.

2) It is true that many contracts and debts are in dollars, including much
consumer debt.

3) As Juan Jose pointed out, perhaps the main (but certainly not the only)
problem is that Argentina does not grow. The current "zero deficit"
government policy has made matters worse, since the reduction in government
spending has resulted in lower activity levels, lower revenues, increased
deficit, and so on.

Re. the dollarized sector of the economy, perhaps the best starting point
there is to de-dollarize all contracts and debt (as Ricardo Hausmann has
proposed). Sure, banks would loose in the case of a devaluation, but they
have already made a killing. Why should they be the only sector who always
wins? At any rate, this is not likely to happen, since the banking sector
is the power behind the throne in Argentina today.

The question should not be exclusively whether to devalue or to dollarize.
The question, as I see it, should be a lot broader: what are the set of
policies that Argentina needs today in order to embark on a path of
sustainable growth? There are many components to this: income
redistribution, a coherent set of industrial promotion policies, some form
of control on speculative capital flows (?), spending on human capital, etc.

Alan







At 10:48 AM 12/13/2001 -0500, J. Barkley Rosser, Jr. wrote:
> Federico,
>      If Argentina were to eliminate the currency
> board and devalue the peso (or let it float),
> do you seriously suggest that the utilities
> would continue to price in dollars?  I
> seriously doubt it.  The problem of dollar-
> denominated debt in Argentina is, however,
> a very serious problem that will only be gotten
> around by some kind of default, already in
> progress, I gather.
> Barkley Rosser
> ----- Original Message -----
> From: "Federico Todeschini" <todeschinisat@xxxxxxxxxxxxxx>
> To: "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> Sent: Thursday, December 13, 2001 9:29 AM
> Subject: Re: Argentina and free trade
>
>
> > Brakley Rosser: What i mean with the public utilities pegged to the
> dollar,
> > is this: When Argentina began the process of privatization of the State
> > Enterprises, the new enterprises fixed their prices in dollars. So a
> > devaluation will leave this prices unmodified, and this will be worse for
> > the competitivity of the country
> >
> > Federico
> >
> > ----- Original Message -----
> > From: "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> > To: "Federico Todeschini" <todeschinisat@xxxxxxxxxxxxxx>
> > Cc: "Post Keynesian Thought" <pkt@xxxxxxxxxxxxxxxx>
> > Sent: Wednesday, December 12, 2001 8:23 PM
> > Subject: Re: Argentina and free trade
> >
> >
> > > Federico,
> > >       I do not know what you mean by your
> > > statement about public utiilties in Argentina
> > > being pegged to the dollar.
> > >      What we see in Argentina is a kind of
> > > unpleasant lockin effect.  Because of the
> > > currency board, many debts and other elements
> > > of the Argentine economy are now irrevocably
> > > dollarized.  That means that a devaluation NOW
> > > will cause all kinds of problems, including a
> > > default that is effectively happening anyway.
> > > But, that is not an argument for either pegging
> > > to the dollar, a dollar currency board upfront, or
> > > general dollarization.   It is simply an argument
> > > that says that since Argentina has got a currency
> > > board, devaluation cannot help as much as it
> > > would if Argentina did not have a currency board.
> > > I could not agree more.
> > > Barkley Rosser
> > > ----- Original Message -----
> > > From: "Federico Todeschini" <todeschinisat@xxxxxxxxxxxxxx>
> > > To: <pkt@xxxxxxxxxxxxxxxx>
> > > Sent: Wednesday, December 12, 2001 11:54 AM
> > > Subject: Re: Argentina and free trade
> > >
> > >
> > > > I dont think the argument about devaluation is good enough for
> > Argentina.
> > > > Our Public Utilities are also pegged with the dollar (USA inflation),
> > and
> > > > they are a very important part of the Argentina problem, and it cant
> be
> > > > solved just with a devaluation.
> > > >
> > > > ----- Original Message -----
> > > > From: "pdavidso" <pdavidso@xxxxxxx>
> > > > To: "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> > > > Cc: <pkt@xxxxxxxxxxxxxxxx>
> > > > Sent: Tuesday, December 11, 2001 12:20 PM
> > > > Subject: Re: Argentina and free trade
> > > >
> > > >
> > > > > >===== Original Message From "J. Barkley Rosser, Jr."
> > <rosserjb@xxxxxxx>
> > > > =====
> > > > > >     Henry Liu puts forth Argentina as an
> > > > > >example that somehow shows the problems
> > > > > >of free trade.  Hardly.  Argentina's problems
> > > > > >clearly arise from its pegging of the peso to
> > > > > >the US dollar at an overvalued rate.  This is
> > > > > >a macroeconomic problem, not a microeconomic
> > > > > >one due to free trade as such.  If it had devalued
> > > > > >when its main trading partner, Brazil, did, I doubt
> > > > > >it would be in the recession it is in now.
> > > > > >Barkley Rosser
> > > > >
> > > > > And it also  suggests why dollarization does not solve balance of
> > > payments
> > > > > problems when a nation trades with other nations linked to the euro,
> > yen
> > > > or
> > > > > freely floating against the dollar.
> > > > >
> > > > > paul
> > > > >
> > > > > Paul Davidson
> > > > > Editor, Journal of Post Keynesian Economics
> > > > > University of Tennessee
> > > > > SMC 523
> > > > > Knoxville, Tennessee 37996-0550
> > > > > phone # (865)974-4221; fax #(561)737-8262;
> > > > > email pdavidson@xxxxxxx
> > > > >
> > > > >
> > > >
> > > >
> > >
> > >
> >
> >


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