As Macrinomics kicks in Argentina, what to expect?

Mohamed El Erian speaks about the so called Macrinomics on the way in Argentina.

I keep wondering economists obsession with the word – big bang and that too likes of Erian. I mean they make economic policy look as big and important as big bang which is just such a bad comparison. A case of giving undue importance to an event. Moreover, most of so called big bang economics either backfire or die a whimper.

Anyways, Erian says it will be interesting to see how these changes move on:

Here is where the Macri government’s approach is an historical exception. Macri took over the presidency with a bang, launching an audacious – and highly risky – strategy that places aggressive price liberalization and the removal of quantitative controls front and center, ahead of the five measures relating to demand management and financial assistance. Already, most export taxes and currency controls have been scrapped, income taxes have been cut, and the exchange rate has been freed up, allowing for an immediate 30% depreciation of the peso.

Historically, few governments have pursued this type of sequencing, much less with such fervor; indeed, most governments have hesitated, especially when it comes to full currency liberalization. When governments have taken similar steps, they usually have done so after – or at least alongside – the provision of financial injections and efforts to restrain demand.

The reason is clear: by taking time to set the stage for liberalization, governments hoped to limit the initial spike in price inflation, thereby avoiding a wage-price spiral and curbing capital flight. They worried that, if these problems emerged, they would derail reform measures and erode the public support needed to press on.

To revive the Argentine economy in a durable and inclusive manner, Macri’s government needs to act fast to mobilize sizeable external financial assistance, generate additional domestic resources, and implement deeper structural reforms. If it does, Argentina’s bold economic strategy will become a model for other countries, both now and in the future. But if the approach falters – whether because of incorrect sequencing or a surge of popular dissatisfaction – other countries will become even more hesitant to lift controls and fully liberalize their currencies. The resulting policy confusion would be bad for everyone.

Anything to do with economics in Argentina is interesting. Same as their magical football..

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: