Dialogue with the former minister of Economy Machinea: notices about the danger of a stagflation

This interesting article appeared today on "La Nación" - an Argentinean newspaper, I've translated to English and think is a good piece to be read.

I hope you like it!

See you on my next post

Prof. Lic. Fernando Julio Silva, MSc.

June 2008

ARTICLE:

Dialogue with the former minister of Economy Machinea: notices about the danger of a stagflation

He says that it is "possible, but avoidable"

Machinea left Cepal and charge of a class will be taken in the University of Alcalá, Spain

With the world growing less and the inflation ascending more, Argentina should have a fiscal wiser politics and not to promote restrictions to the exports that increase more the price of the foods, according to the general salient secretary of the Economic Commission for Latin America (Cepal), José Luis Machinea.

After being honored by the government from Chile after five years of command in Cepal, and before being made position of the class Raúl Prebisch in the University of Alcalá, Spain, Machinea said that the stagnation scenario and inflation for Argentina were "possible, but avoidable", if corrective measures were adopted.

In phone dialogue with “La Nación” from Santiago, Chile, the former minister of Economy - that will be replaced to the front of the organism by Mexican Alicia Bárcena - noticed that the countries of the region had not taken a complete advantage form the favorable cycle generated by the international increase of the price of the raw materials, that is near concluding.

Journalist: How did Latin America evolve in the last five years?

José Luis Machinea: It is better; has had a superior growth to 3 percent that didn't register from ends of the decade of the 60, and of more quality because it reduced their debt, it increased the twin surpluses and it lowered the poverty and the indigence levels; those are the lights. The shades have to do since with a region that is not taking advantage of such a favorable context completely for the high price of the raw materials, it didn't invest enough neither in infrastructure neither in innovation. Except for Brazil that invests 1 percent of G.D.P. in investigation, and Chile, 0,65 percent, the rest is below 0,5 percent.

J: And from the fiscal thing?

J.L.M.: Improved, but the public expense was pro cyclical and it ascended too much.

J: Do you expect the end of the favorable cycle of prices for the region?

J.L.M.: The conditions of medium term will continue being favorable, but the prices will turn in next months for the deceleration projected for United States, Japan and Europe that it will affect China. Also, the increase of the inflation begins to be worrying, because it overcomes 10 percent and that will generate more poverty.

J: Does this end, then, the regional supposed desacople of the financial crisis of the United States?

J.L.M.: United States weighs less, but it continues having importance. Also, the deceleration is global.

Short term

J: Does the closing of the exports influence in in the increase of foods’ prices?

J.L.M.: Yes; that was already seen in the case of the rice. The countries that restrict the exports solve their domestic problems of short term, but they increase the international problem of the prices and they give less incentives to the production to be increased in the medium term.

J: Is to grant subsidies to the poor a more reasonable road?

J.L.M.: It is a good road that countries like Mexico, Chile and Dominican Republic already took, because focalize the help and it maintains the incentives to the supply.

J: Is it possible that, in this circumstance, the richest countries reduce part of the subsidies that apply to the agriculture?

J.L.M.: It doesn't seem probable; in fact, what is happening is that they increase the subsidies for the biofuels production, what increases the world problem of the price of the foods.

J: Will they begin to increase the interest rates and the dollar in United States?

J.L.M.: The cycle of low rates finished and almost all the countries will begin to increase them. If this happens before United States makes it, there will be a widespread appreciation of currencies in front of the dollar and that will provoke a global bigger economic deceleration.

Scenarios

J: Which measures should the countries of the region take in this context of smaller growth?

J.L.M.: In Argentina or Colombia, where there is more inflation, it would be necessary to be more cautious with the fiscal politics, because it can have an acceleration of the inflation that is contagious to the wages and the rates. The contractive measures, mainly in the monetary plan, don't serve too much.

J.: Does Argentina suffer a crisis again?

J.L.M.: We had estimated an annual growth of 7 percent for the effect crawls of the 2007, but give the sensation that in the second semester of the year the economy will slow down. If the conflict [with the farmers] continues, it will have an impact in the investment and in the consumption and it could slow down the economy a lot, in a context of quick inflation. The stagflation is possible, but avoidable.

J.: How?

J.L.M.: There are two central questions to solve that exceed Argentina: the social cohesion and the adoption of a strategy of medium term. If those consents don't exist and there is a lot of fight in the society, to the countries is difficult to define their profile. And that can be the case of Argentina.

By Martin Kanenguiser
From La Nación
Argentina
http://www.lanacion.com.ar/nota.asp?nota_id=1026024

GOD WAS LOOKING FOR A NEW WING - JUAN CRUZ MIGLIORE R.I.P. - 21st JUNE, 2008

Let me move away from the topic that generally write about.

Today Saturday June 21 2008 is for me a very sad day, one of my ex. students went to talk with God.

He was a young fellow with a great potential, student of Publicity and in love with his sport: Rugby

In an unfortunate play - and trap of destiny – he suffered a blow of those that this sport has for thousands like part of its game; that is to say of contact not of another thing

Juan Cruz, such his name, was my student during his last year of his secondary school (Saint Philip’s the Apostle, of Don Torcuato), I remember him like somebody quiet, respectful, calm and with many hopes about his future.

Today he is not more physically, but he will always be in my heart, as great part of those people to which I had the chance of transmitting my small technical and life knowledge.

Dear Juan Cruz Migliore, be worth my fraternal hug at the distance, I know you will receive it.

With respect and pain

Fernando Julio Silva
21st June, 2008

Argentina: Facing a new big collapse?

Argentina is going through another crisis, there is no doubt about this. The point is that again is not "just" an economical one, we are facing a new social-economical-political problem.

On one hand, the government is imposing retentions (a way of calling taxes) over the production of soya (they switched from 11% to almost 44% from March to now). The President explained it was to have a better distribution of income from the people that had more economical power to the people with less. She explained this money was going to be used to increase the level of housing, hospital's maintenance, etc. Even though not a lot people trust on this argument.

On the other hand, we have farmers (small, medium and big size producers). The increase on retentions will affect all of them in the same percentage, but not in the same monetary proportion. For a big producer this might not be such a big difference, but for a small or medium size one is a huge change.

Another sector that appeared as directly involved is the one of the truck drivers and owners, if there is no production available to be moved, there is no work for them

Then, the whole society is affected due to the point that products became scarce, so their prices start to increase (but not salaries!)

A paradox, Argentina has always been an excellent producer of cattle and agriculture (probably its main source of income) so, why instead of improving the conditions for this sector that has an interesting percentage of the world market, governments (this is not a new condition, it was already done by previous governments in different ways - for example it was a good increase on export taxation back in the 80's when the country had a good chance to export soya to U.S.A. due to a lack of volume of local production in that country. Of course, this advantage disappear due to that increase on taxes and the opportunity was lost).

As you can see, this is a big puzzle that has to be solved.

My question is, how much will be total cost...

See you soon

Prof. Lic. Fernando Julio Silva, MSc.

June 2008

ARGENTINA: Inflation for May: 0.6%... according to the Government. Is this real?

The last value that the new index used to measure Argentinean inflation show is 0.6%, but...what did the "temperature of the local economy" say about this?

The answer is that someone is making a mistake because on the day-to-day expenditure consumers find that the increase in prices in, for example, supermarkets largely exceed this change and also that we deal with scarcity for the basic products or the non existence of the first brands.

The way of masuring the C.P.I. (Consumer Price Index) was already questioned last year due to similar problems: wrong real values, differences between what was measured in the Capital city and what was going on on the rest of the Country, etc.

A good article written by Isamel Bermudez from Clarin shows some significant numbers, for example:

• For the government the purchasing power increased during 2007
• They were significant increases on salaries (an average of 25%)
• Prices are falling, for example vegetables value dropped in 33% and clothes in 12%
• The prices of the basic products only were increased in a 5.1% (In the last five months... the increase was of only 1%)
• Level of indigence moved down to a 5.9% over the total population

If we analyze these numbers, why are Argentineans complaining about their economical situation? Masochism may be? People that are never happy and always blame governments?

Someone is not telling the truth...

See you on our next talk

Prof. Lic. Fernando Julio Silva, MSc.

June 2008

Argentine debt surge raises spectre of default

By Jude Webber in Buenos Aires
Published: June 13 2008 00:23

Argentina’s debt levels are now higher than they were when it crashed into the biggest sovereign debt default in history in 2001, and a worsening crisis of confidence in the government has brought the spectre of a new default closer, a report to be published next week says.

Despite a radical restructuring just three years ago, public debt has reached $114.7bn (€74.4bn, £59bn), or 56 per cent of gross domestic product, compared with $144.2bn, or 54 per cent of GDP, in 2001 – at a time when Argentina’s economy was much larger – according to the paper.

Martín Krause and Aldo Abram, directors of the Argentine Institutions and Markets Research Centre at Eseade business school and the report’s authors, also found that if the amount owed to bondholders who did not accept the 2005 restructuring and are suing to recover their money is included, Argentina’s overall debt rises to $170bn, or 67 per cent of GDP.

“We’re not teetering on the brink of default but if we continue down this path, with this level of [social] conflict, we could get there,” Mr Abram told the FT.

Many developed countries, including Italy and Japan, have higher ratios of debt to GDP but Argentina’s higher borrowing costs and rocky institutional record make it harder to secure credit. “The worry is not the amount, it’s that we won’t have access to credit,” Mr Abram said.

The six-month-old government of Cristina Fernández, the president, has been struggling to resolve a conflict with farmers after it imposed a sliding scale of export tariffs on key agricultural exports in March. The unrest has spread to truck drivers, who have mounted roadblocks to demand an end to the farm dispute, which has disrupted grains transportation.

Their action has caused fuel shortages and will put further pressure on inflation, which the government is widely accused of trying to conceal with doctored data.

Meanwhile, the government must this year find $14.6bn for debt servicing, plus $11.8bn next year and $10.5bn in 2010.

However, the threat of legal action by bond holdouts bars Argentina from international capital markets whilst it remains in default with the Paris Club of creditor nations, to which it owes $6.6bn.

Argentina has increasingly turned to Hugo Chávez, the Venezuelan president, who has bought $6.4bn in bonds in the past three years.

But its international financial isolation is costly – Buenos Aires has had to pay Venezuela interest rates of up to 13 per cent, yet it cancelled its low-cost International Monetary Fund debt and the Paris Club debt only costs 5.3 per cent, Mr Krause said.

By contrast Brazil, which had a far worse debt profile than Argentina in 2001, recently achieved investment grade and sold a 10-year bond at 5.3 per cent.

Copyright The Financial Times Limited 2008
http://www.ft.com/cms/s/0/79710d62-38cf-11dd-8aed-0000779fd2ac.html?nclick_check=1

I've been a long time out!

After going through some technical problems, I'm able to start publishing again.

The world had change a lot from the social & economical points of view: Inflation, recession, unemployment, poverty, oil prices, stock exchange crisis are between others, the main problems that now a days are common, more common, than before.

The dollar value depreciated in terms of the euro.
China's economy growing... may be out of control?
Oil prices breaking the U$ 100.- barrier
A big recession affecting the United States... and in an election year

I'll try to bring some light over them and, as usual, your comments are appreciated

Best regards

Fernando