Saturday, January 30, 2016

Stiglitz ‘worried’ over Macri’s first measures

President Mauricio Macri’s initial measures are “worrisome” and will have distributive consequences and development implications, Nobel Prize-winning economist Joseph Stiglitz and Argentine economist Martín Guzmán concluded in a column published yesterday.

Stiglitz and Guzmán said the cut in export duties represents a “large transfer” to the wealthy at great cost of ordinary workers, claiming the immediate winners of Macri’s measures are agricultural and commodity exporters who will receive much higher compensation for what they sell.

“Macri’s early economic policies seem to rely on several controversial assumptions about how the devaluation will affect consumer prices and how investment will respond to more market-driven policies,” the column reads, published on the website Project Syndicate.

“If those assumptions founder, the government will need to react fast, intervening to avoid the possible recessionary effects or increases in inequality and poverty or else the process of inclusive development will be severely harmed,” they added.

Stiglitz and Guzmán said Macri’s main task will be addressing the country’s external and fiscal imbalances and reducing inflation — without undoing what has been achieved during the Kirchnerite era. Any course of action is risky and could lead to an acceleration of the inflation, a growth of inequality and even stagflation — a cooling economy in which inflation is not fully contained.

“If higher prices for domestic goods previously subject to export taxes and higher import prices (as a result of devaluation) are passed on to consumers, real wages will fall, in which case workers are likely to demand larger pay increases, pushing up inflation. And the effect of the devaluation on consumer prices could go beyond traded goods,” Stiglitz and Guzmán wrote.

Herald staff