Re: Keynesian Christmas!

[Leonardo Vera <lvera@xxxxxxxxx>]

William;

That forty percent of Argentines do not pay taxes does not surprise anybody
in Latin America. That is very typical in a growing informal economy.  Tax
collection is indeed low because income and profits are below trend.
Remenber that the fiscal deficit in Argentina is very much caused by the
cycle. The introduction of a new currency in the form of bonds (government
liabilities) is going to deal with two problems: (a) the payment of
salaries of public employees, purchases of goods and services and pensions
(there was no money), and (b) the lack of consumption demand (consumption
decreased 50% during christmas time). In fact, the parallel circulation of
pesos and goverment bonds is not new. Lecop Bonds and Patacones (both
issued by the government) are accepted by some commercial activities as money.

The new currency parity with the peso (and the dollar) is 1:1, but in fact
in the exchange rate market its value is 0.85. It is for that reason that
many people expect a floating system or an exchange rate adjustment if this
new currency is succesful. There is no convertibility so far, so in fact
the system implies an exchange rate control. I don't see how Henry's idea
(all Argentina exports paid in new Argentina currency) can be put in place.

There is a plan to create 100000 jobs in the comming weeks with the help of
provinces. Again resources will come from government liabilities.

We should not expect much from a transitory goverment. A gradual approach
is the best they can do now. Certainly, the default decision was drastic
but unavoidable. The cost of deafault is close to zero since the foreing
markets were already closed for Argentina. Even the IMF decided to stop
lending. Measures like tax reforms, or an official reform in the exchange
rate regime (though necessary) should be faced by a new legitimate
government.

Leonardo


At 04:50 p.m. 24/12/01 -0600, you wrote:
>   "As long as taxation collections can be made Argentina should..." But
>Bill, Clifford Krauss in the New York times December 22 reported, "Forty
>percent of Argentines do not pay their taxes..." So now what?
>
>  >From: Bill Mitchell  >To: pkt@xxxxxxxxxxxxxxxx  >Subject: Re: Keynesian
>Christmas!  >Date: Tue, 25 Dec 2001 07:38:51 +1000  >  >Dear PKT  >
>>Classic case for a Job Guarantee...  >  >As long as taxation collections
>can be made Argentina should:  >  >(a) abandon the currency peg against the
>dollar.  >(b) renegotiate all foreign contracts held by the govt in the
>peso.  >take it  >or leave it.  >(c) introduce a JG with wages in peso.
>>(d) introduce short-term price controls if needed.  >(e) absolutely resist
>dollarisation.  >  >best wishes  >bill  >  >  >>Economic measures in
>Argentina (for the next 60 days??):  >>  >>1. Default: no interests
>payments, no principal payments (if any);  >>2. Third Currency: Treasury
>Notes...to pay for emergency expenses,  >>such as  >>#3......;  >>3.
>Employment Program of 1m jobs supervised by an NGO...Provinces  >>must
>>>create  >>ANY job and the Govt. will pay 200 "notes" (dollars). This
>>>quasi-currency  >>will  >>float against the dollar;  >>4. No devaluation,
>no dollarization,.1peso=1"note"=1 dollar.....  >>  >>comments???  >  >  >
>>William F. Mitchell  >Professor of Economics  >Director, Centre of Full
>Employment and Equity  >University of Newcastle, NSW, Australia  >E-mail:
>ecwfm@xxxxxxxxxxxxxxxxxxxxxxx  >Phone: +61-2-4921 5065  >Fax: +61-2-4921
>6919  >Mobile: 0419 422 410  >
>>http://e1.newcastle.edu.au/economics/bill/billeco.html
>>http://www.billmitchell.org  >
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_____________________________
Leonardo  Vera
Universidad Central de Venezuela
FACES, Escuela de Economía
Caracas, 1050
Venezuela.