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
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
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