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1,600 | <s>[INST] The Convertibility Law is the most crucial of his economic measures, [/INST] because it lays down that the monetary base of Argentine pesos will not exceed the value of the country's foreign reserves. </s> |
1,601 | <s>[INST] After prices rose by almost 5,000% in 1989, today's [/INST] inflation rate--about 12% for consumer prices, barely 3% for wholesale prices--comes as a huge relief. </s> |
1,602 | <s>[INST] They may choose instead to stick with [/INST] the law--the law against inflationary finance, and the law of the one-term presidency. </s> |
1,603 | <s>[INST] ___ Document 228 of 400 Montezuma's revenge [/INST] Author: Anonymous Publication info: The Economist 327.7805 (Apr 3, 1993): 65. </s> |
1,604 | <s>[INST] accountid=28034 Abstract: Latin America, with the exception of Brazil, has [/INST] boomed in recent years and inflation has plummeted, thanks to monetary and fiscal prudence and free market reforms. </s> |
1,605 | <s>[INST] Yet there are growing doubts [/INST] about whether this success can be sustained. </s> |
1,606 | <s>[INST] Argentina's current account has swung from a [/INST] surplus in 1990 to a deficit of 3.5% of GDP in 1992. </s> |
1,607 | <s>[INST] Over the same period, Mexico's current [/INST] account deficit has more than doubled to 6.5% of GDP. </s> |
1,608 | <s>[INST] These deficits match those on the [/INST] eve of Latin America's debt crisis in the early 1980s. </s> |
1,609 | <s>[INST] Some fear that they will [/INST] force both Argentina and Mexico to devalue their currencies. </s> |
1,610 | <s>[INST] That would immediately cast a shadow over their entire economic programs, since [/INST] both governments have made a strong exchange rate a central plank of their strategies to fight the inflation that has dogged them. </s> |
1,611 | <s>[INST] The governments of both countries [/INST] say there is no cause for concern. </s> |
1,612 | <s>[INST] Full text: The bankers, businessmen and investors gathered this [/INST] week in Hamburg for the annual meeting of the Inter-American Development Bank were full of confidence. </s> |
1,613 | <s>[INST] Latin America (with the glaring exception of Brazil) has [/INST] boomed in recent years and inflation has plummeted, thanks to monetary and fiscal prudence, and free-market reforms. </s> |
1,614 | <s>[INST] Yet there are growing doubts [/INST] about whether this success can be sustained. </s> |
1,615 | <s>[INST] Argentina's 12-month inflation rate has [/INST] fallen from 20,000o in 1990 to 13.4% in February. </s> |
1,616 | <s>[INST] At the same time, its CDP grew by [/INST] a breathtaking 9 in real terms in 1992, after growing by 6% in 1991. </s> |
1,617 | <s>[INST] Mexico's inflation is expected to dip into single digits [/INST] this year, and it has enjoyed average growth of 3.5% in the past four years. </s> |
1,618 | <s>[INST] But amid all this cheer [/INST] there is mounting concern about their ballooning current-account deficits. </s> |
1,619 | <s>[INST] Argentina's current account has swung from a [/INST] surplus in 1990 to a deficit of 3.5% of GDP last year. </s> |
1,620 | <s>[INST] Over the same period, Mexico's current-account [/INST] deficit has more than doubled to 6.5% of GDP. </s> |
1,621 | <s>[INST] These deficits match those on the [/INST] eve of Latin America's debt crisis in the early 1980s. </s> |
1,622 | <s>[INST] Some fear that they will [/INST] force both Argentina and Mexico to devalue their currencies. </s> |
1,623 | <s>[INST] That would immediately cast a shadow over their entire economic programmes, since [/INST] both governments have made a strong exchange-rate a central plank of their strategies to fight the inflation that has dogged them. </s> |
1,624 | <s>[INST] The governments of both countries say there is no [/INST] cause for concern because: * Their current-account deficits have been exceeded by inflows of private capital. </s> |
1,625 | <s>[INST] * It is natural for developing [/INST] countries to run a current-account deficit while they are developing. </s> |
1,626 | <s>[INST] Capital goods account for much [/INST] of the increase in imports, as investment has boomed. </s> |
1,627 | <s>[INST] As long as the money is [/INST] wisely invested, there is nothing wrong with depending on foreign capital. </s> |
1,628 | <s>[INST] Japan ran a current-account deficit [/INST] through most of the 1950s and early 1960s. </s> |
1,629 | <s>[INST] South Korea had a deficit [/INST] almost continuously in the three decades to 1985. </s> |
1,630 | <s>[INST] * A surge in imports [/INST] was inevitable after both countries lowered trade barriers. </s> |
1,631 | <s>[INST] Unlike in the early 1980s, today's deficits do [/INST] not reflect heavy government borrowing, but are the consequences of private-sector borrowing and spending. </s> |
1,632 | <s>[INST] Unfortunately this is the same argument used [/INST] by Nigel Lawson, then Britain's chancellor of the exchequer, in the late 1980s. </s> |
1,633 | <s>[INST] Between a third and a half of [/INST] the inflow of capital into Mexico is short-term money, chasing high interest rates. </s> |
1,634 | <s>[INST] If so, the government would have [/INST] to push up interest rates (and squeeze growth), or devalue. </s> |
1,635 | <s>[INST] A run on the Argentinian peso last November forced [/INST] its central bank to intervene in support of the currency and to increase interest rates. </s> |
1,636 | <s>[INST] Mexico has also had to [/INST] keep interest rates high to maintain capital inflows. </s> |
1,637 | <s>[INST] Exchange-rate theory for developing countries [/INST] has been turned on its head in recent years. </s> |
1,638 | <s>[INST] In the 1980s, the IMF insisted that countries [/INST] devalue their currencies regularly to remain competitive and so to eliminate trade deficits. </s> |
1,639 | <s>[INST] In fact, this fuelled inflation, [/INST] while any gain in competitiveness was short-lived. </s> |
1,640 | <s>[INST] Now that devaluation is no loner seen as a magic [/INST] cure, a growing number of developing countries have pegged their exchange rates as part of a battle against inflation. </s> |
1,641 | <s>[INST] Since April 1991 the Argentinian peso has been tied to [/INST] the dollar and, under the "Convertibility Law", the central bank cannot issue money unless backed by foreign reserves. </s> |
1,642 | <s>[INST] After a decade of triple-digit inflation, [/INST] this tough policy has been crucial in restoring confidence in money. </s> |
1,643 | <s>[INST] Mexico has a crawling peg whereby [/INST] its exchange-rate against the dollar is adjusted regularly by limited amounts. </s> |
1,644 | <s>[INST] The maximum annual rate of [/INST] devaluation was doubled last October to 4.6%. </s> |
1,645 | <s>[INST] While their currencies have been more or less tied to [/INST] the dollar, inflation in Mexico and Argentina has continued at a far higher rate than in America. </s> |
1,646 | <s>[INST] Over the past two years, Argentina's consumer prices [/INST] have risen by about 45%, Mexico's by 28%, but America's by only 6%. </s> |
1,647 | <s>[INST] These figures exaggerate the loss [/INST] of competitiveness as they include non-traded goods. </s> |
1,648 | <s>[INST] These suggest that the Argentinian peso is about [/INST] 5% less competitive than it was two years ago, the Mexican peso 9%. </s> |
1,649 | <s>[INST] This says nothing, however, about [/INST] whether the currencies were correctly valued two years ago. </s> |
1,650 | <s>[INST] Geoffrey Dennis, an economist at James Capel's New York office, [/INST] believes that the Argentinian peso is grossly overvalued, while the Mexican peso is not far out of line. </s> |
1,651 | <s>[INST] One of his reasons is that The Economist Big [/INST] Mac index shows that Buenos Aires is one of the most expensive cities in the world. </s> |
1,652 | <s>[INST] Another is Mexico's export performance: in each of the [/INST] past three years Mexico has increased its share of the American market; Argentina's exports have stagnated. </s> |
1,653 | <s>[INST] Mr Dennis does not expect Mexico to [/INST] devalue, although he warns that it may have to keep interest rates high. </s> |
1,654 | <s>[INST] By contrast, he predicts that Argentina [/INST] will have to switch to a crawling peg this year. </s> |
1,655 | <s>[INST] Argentina is in a tight corner: at today's exchange rate, its [/INST] industry is being squeezed; yet how can the government break its commitment to a dollar peg without shattering confidence? </s> |
1,656 | <s>[INST] The minute investors think that [/INST] a devaluation likely, hot money will flee. </s> |
1,657 | <s>[INST] Domingo Cavallo, Argentina's finance minister, rules out devaluation because any benefits [/INST] would be quickly eroded by higher prices, especially as capital and intermediate inputs account for about four-fifths of imports. </s> |
1,658 | <s>[INST] A better way to regain [/INST] competitiveness is to speed up supply-side reforms. </s> |
1,659 | <s>[INST] Half a century of protection [/INST] has left plenty of scope to boost productivity. </s> |
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