Chapter 7: Stability Conditions for a Small Open Economy
Etelberto Ortiz THE ISSUES Is there any good reason to believe that the standard policy recipes conceived out of common views and problems of the 1980s, should work in an entirely different environment nowadays? This question is addressed to the current orthodox view in response to whichever disequilibrium appears: sound macroeconomic conditions rest on a null ﬁscal deﬁcit and negligible inﬂation. Nevertheless in the 1998 address to the World Bank Conference on Trade and Development, Joseph Stiglitz expressed his doubts about the form in which the 1995 Mexican and the 1997 South-East Asian crises exploded. In both cases we were in the presence of ‘successful models’, at least according to the view of the World Bank and the IMF. Both engaged in long successful efforts to reduce the public deﬁcit to zero and the rate of inﬂation to a single digit. Both were the ‘stars’ of structural change policies on the basis of trade and ﬁnancial liberalization. Nevertheless, both collapsed into severe payments and ﬁnancial crisis. Undoubtedly there are many common features with the recent collapse of the Argentinean economy. This chapter takes the view that current economic policies look as if they were drawn only from inﬂationary experiences of the 1970s and 1980s, when monetization of chronic public deﬁcits were the original sources of inﬂationary pressures. But today’s crises may not necessarily be the result of excess drawing of the government on the Central Bank. In fact the core of our argument...
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