by
Sergio Negrete
negrsm@essex.ac.uk
On Fri, 14 Apr 1995 15:28:42 -0400 (EDT) Jose A. Briones wrote: > To get the ball rolling, I am resending a couple of postings > that proposed alternative economic Solutions for Mexico. > The first one is from the Mexican Network on Free Trade (RMALC) > and the second one was presented by Carlos Ramirez in the > newspaper "El Financiero". It is excellent that Jose Briones gets the ball rolling, as it provides good examples of the alternatives presented to the economic strategy followed by the Mexican government, and it is possible to evaluate their real worth, and potential application. > MEXICAN NETWORK ON FREE TRADE (RMALC) LOG > YES, THERE ARE OPTIONS > Plan for Economic Recovery and Sustainable Development > Macroeconomic Policy and the External Sector > > We must stabilize the chief macroeconomic variables, but not > at the cost of drowning the economy and dismantling industry. > Instruments of monetary, fiscal and credit policy must be made > more flexible to alleviate the pressure that exists on the > external sector. This means, in other words, to reduce interest rates. The increase in demand it would bring as a result would increase any deficit, or reduce any surplus, in the external accounts, precisely the inverse of the objective proposed. > Two steps in this direction would be to: a) renegotiate > foreign debt, both public and private, starting with a suspension > of payments; and b) apply emergency measures to reduce imports, > maintaining only those that are indispensable for productive > activity. The foreign debt is not such a big problem as the internal debt indexed to the dollar (tesobonos). In case of liquidity or solvency problems, the private sector can renegotaite its debt without the government support. There is no analysis of the loss of confidence a renegotiation of public debt would imply. Emergency measures to reduce imports are being implemented by the government, with increased tariffs on certain products, on imports from countries with no free trade agreement signed with Mexico. There is no specific criteria to distinguish imports "indispensable for productive activity" from others. Quantitative restrictions on imports, quotas, bring corruption and distortions. > The North American Free Trade Agreement (NAFTA) imposes > severe limitations on economic policy, representing an obstacle > to the adoption of measures aimed at alleviating pressure on the > external sector. It is therefore necessary to submit the > agreement to revisions that would allow Mexico to implement > measures that would reduce the vulnerability of its economy. This proposal represents a real alternative: to renegotiate NAFTA, as it would allow to apply a brake (tariffs, quotas) on U.S. and Canadian imports. There is no analysis of the implications of such a radical proposal. If Mexico wants to renegotiate NAFTA, the U.S. and Canada can ask for the same. So, the result would be Mexican exports being stopped, thus with the same result on the external sector, but a diminished trade. Any gains derived from a revised or even abolished NAFTA could well be outweighted by the losses. One thing is certain: the U.S. Congress, and even Clinton, would refuse any trade concessions to Mexico. Moreover, the reputation of Mexico as a trading partner would be reduced or even blown to pieces with a request of renegotiation. > ADJUSTMENT FOR GROWTH, EMPLOYMENT AND PRESERVATION OF THE > INDUSTRIAL BASE OF PRODUCTION > > Incentives for Productive Investment > > Easing pressure on the external sector would allow reduction > of interest rates in that would be unnecessary to attract masses > of speculative capital to finance the external deficit. But this > process must be accompanied by a redefinition of the central > bank's role in financing productive activity. This would imply a > more flexible credit policy, which would in turn help commercial > banks to ease up on credit. Again, in other words, to reduce interest rates. The consequences of the measure on inflation and the exchange rate are not even mentioned. > With respect to fiscal policy, the Plan proposes to: > > 1. Substitute a tax on speculative profits, including those > derived from stock market operations, for the 2% tax on business > assets. What is the projected revenue from this tax? Would it be higher than the revenue from the 2% tax on assets? How many transactions in the Mexican stock exchange would emigrate to other countries with no tax? A tax on transactions on "hot money" buying short-term debt would be a good idea, but why abolish the tax on business assets? Then, with luck, the total revenue is unchanged, and very probably would fall. > 2. Stimulate productive investment incentives and job > creation. No specific measures proposed. > 3. Increase the pool of taxpayers via administrative > simplification, not harassment of taxpayers. No specific measures proposed. > 4. Revise the Rent Tax Law to make the tax structure fairer. No specific measures proposed. > 5. Revise the special regimen for mercantile corporations, > particularly for the maquiladora [foreign-owned factories] > industry. No specific measures proposed. > Internal Debt > > In terms of the Plan, Congress should expedite a > Reconstruction of Domestic Debt Act, under which short-term > debits would be exchanged for long-term debt at a low, fixed real > interest rate (similar to that of the Ajustabonos [government > bonds]). The conditions and terms of this operation would be > defined by different types of credit securities and operations. > Commercial creditor banks could charge this interest rate plus a > reasonable percentage. That is, what Menem did in Argentina in 1989, and Collor in Brazil in 1990. The result was not encouraging, and confidence in the financial system was destroyed. How do you compensate all the individuals and private enterprises that suddenly will be unable to use their money, to buy or make payments? The disruption of money flows would bring a stronger recession. Even the government would lose, because many would argue (as it happened in Brazil) that the money that was "frozen" was going to be used to pay taxes. > Wage Policy and Employment > > Wage policy should no longer be a piece in the anti- > inflation fight, nor constitute an attraction for foreign > investment. It should instead become a lever for growth. > > The minimum wage should tend to adjust itself to the > criterion established by the Constitution: sufficient to provide > for the all-around necessities of a family. It would thus power > development, since workers would become strategic consumers whose > welfare would benefit the whole of the economy. > > The Plan contemplates: a general emergency salary raise; > freeing up salary negotiations between business and labor, thus > ending wage ceilings; abolishing the 1% payroll tax; creating > emergency jobs to rebuild and wide infrastructure, with funds > from the Secretariat of Social Development. That is an argument used by many governments: to grant salary increases the internal market, and pushes growth. Absolutely true... in the short-term. In the long run, and long run here is between one and two years, there is a three-digit inflation, and real wages are lower than before the increase. A study by Dornbusch and Sebastian Edwards gives ample evidence that supports this. > Anti-inflation Policy > > The Plan doesn't leave the fight against inflation > unattended, but assumes that it is one variable to be considered > as part of an overall economic policy. Therefore, the Plan > proposes to: > > 1. Diminish interest rates, reducing inflationary > pressures. This is certainly a radical departure from traditional economic thinking: lower interest rates decrease inflation. It would be great if it was true but, unfortunately, evidence points exactly the opposite way. > 2. Stimulate growth and productivity, both factors that > play a part in lowering costs. No spenific measures proposed. To increase productivity has been always a goal of the government. > 3. Diminish imported content in national production. No specific measures proposed. > 4. Create a strong peso, strengthening the internal market. A strong peso would increase the deficit (or reduce the surplus) in the external accounts, precisely what is pointed out as a problem, unless of course tariffs and quotas can be put successfully in place. > 5. Reduce inflation's social effects on the majority of the > population. No specific measures proposed. > Sectorial Policy and the Role of the State > > The Plan must be complemented by sectorial policies that > strengthen the industrial base and make it competitive, not only > in the domestic market, but also internationally. This requires > measures that consistently promote formation of human resources, > scientific development, and investment in infrastructure and > communications. The foregoing presupposes a redefined role for > the State in promoting and regulating economic activity. No specific measures proposed. In summary, the Plan proposed by RMALC seems constructed on very shaky foundations: that NAFTA can be negotiated without any costs, that restrictions to imports can be implemented successfully and without costs (such as distortions and the corruption that was typical before the economy was opened), and that reduced interest rates would reduce inflation, and have no effect on the external accounts. The proposals have some similarity to the policies implemented between September and December 1982. The results are there for everybody to remember. > >From Carlos Ramirez in "El Financiero" > > El Financiero, viernes 31 de marzo de 1995... > Las conclusiones del seminario segun la rectori'a de Armando Labra, uno de > los economistas progresistas ma's congruentes, son cinco: > > 1.- Si' existen opciones de poli'tica econo'mica, no para eludir la > recesio'n sino para mitigarla y atenuar sus efectos de largo plazo. > 2.- En la senda de la actual poli'tica econo'mica, inevitablemente se > profundizara' la recesio'n. > 3.- No bastan los paquetes econo'micos aislados. Es menester replantear la > poli'tica econo'mica en su conjunto. > 4.- Ello no opone obsta'culos de te'cnica econo'mica. Existen opciones > te'cnicas viables e inmediatas. Avanzar significa definiciones de poli'tica > econo'mica y de poli'tica-poli'tica. > 5.- Es imperativo rescatar la soberani'a nacional sobre la poli'tica > econo'mica. No hay propuestas especificas concretas. > De todas las participaciones en ese seminario, realizado a mediados de > marzo, hubo tres significativas: > David Ibarra, exsecretario de Hacienda y economista de la corriente de la > no neoliberalizada Comisio'n Econo'mica para Ame'rica Latina:... > Ibarra hace algunas sugerencias: > > 1.- Conferir congruencia entre poli'tica cambiaria y el resto de la > poli'tica econo'mica, vinculando la macro con la microeconomi'a, recortando > los tiempos de las reformas estructurales y los ajustes cambiarios. ?Como? Tal vez el problema es que se trata de un resumen, pero no dice nada especifico. Por ejemplo, ?Se debe devaluar mas o menos? > 2.- Resolver la dualidad entre equidad y crecimiento para no sacrificar > doblemente a los trabajadores, a consecuencia de precios y salarios > adversos, y dar prioridad a la generacio'n de empleo. No hay propuestas especificas. > 3.- Reconocer los peligros de emplear el tipo de cambio como ancla > permanente para manejar el sistema de precios. Totalmente de acuerdo, ?como evitar ese peligro? No se propone una alternativa al regimen cambiario actual o al existente antes de diciembre 1994. > 4.- Combinar el control monetario con la modernizacio'n estructural de la > planta productiva. Esto es, bajar un poco las tasas de interes para disminuir el riesgo de quiebras. Muy valido, pero es necesario calcular el costo que ello implicaria en devaluacion, mayor inflacion y fuga de capitales. > 5.- Limitar la fatiga de los sectores mayoritarios mediante precios y > subsidios que les favorezcan. ?De donde obtener recursos para financiar esos subsidios? ?A que sectores beneficiar? ?Que productos? Sobre todo, ?como? > 6.- Precavernos de abrir innecesariamente los mercados de capitales, ya > que con ello se acentu'an los desequilibrios estructurales y se genera una > masa de capitales especulativos indeseables. Muy valido, y relativamente facil de implementar. La condicion para ello, disminuir la dependencia de esos capitales, de hecho esta ocurriendo ahora. > 7.- Abandonar la obsesio'n inflacionaria y recuperar la vieja sabiduri'a de > otros economistas, no para regresar al pasado sino para buscar metas ma's > modestas y alcanzables. ?Cual es esa vieja sabiduria? ?Cual es una inflacion aceptable? > Jaime Ross, un economista del Centro de Investigacio'n y Doencia Econo'mica > (CIDE), cuando e'ste au'n buscaba opciones nacionales, hablo' de las > lecciones de la crisis. Afirmo' que la crisis es de las poli'ticas, no del > modelo. Ross no recomendo' seguir carentes de poli'ticas comercial e > industrial y sugirio' utilizar el tipo de cambio como instrumento para > animar la produccio'n y el empleo. Asimismo, propuso la necesidad de > incorporar otros instrumentos que impacten en la balanza de pagos, una > poli'tica fiscal no centrada en el equilibrio presupuestal sino en metas > fiscales en funcio'n de resultados del sector externo. Al parecer recomienda devaluar mas el peso. Fuera de ello, parece proponer una politica muy parecida a la que esta siguiendo el gobierno: la politica fiscal en funcion del sector externo, otras herramientas para impactar la balanza de pagos (aumento de aranceles). Incluso dice que el problema no es el modelo. Es poco relevante, pero se llama Jaime Ros, no Ross. > Y Clark Reynolds, investigador norteamericano especializado en temas > mexicanos y con varios libros sobre Me'xico, sugirio' rescatar lo mejor del > pasado y del presente. En 1982, afirmo', asumio' el poder una nueva > generacio'n de funcionarios que puso en el mercado la solucio'n de los > problemas de la oferta. E hizo cuatro propuestas concretas: > > 1.- Transformar la estructura industrial al tiempo que se ajusta el modelo > a las nuevas circunstancias. El problema puede ser que es un resumen. No hay propuestas concretas. > 2.- Aprovechar los recursos bancarios y no bancarios para financiar los > fondos para la produccio'n, si bien esto no resulta hoy fa'cil. No hay propuestas especificas. > 3.- No pensar en sustituir importaciones sino en incrementar > exportaciones, sin desconsiderar que influyen no solo en las expectativas > econo'micas sino tambie'n en los riesgos poli'ticos. Aumentar exportaciones es lo que precisamente busca el gobierno. > 4.-Discutir ma's las bases de un nuevo modelo de desarrollo, pero siempre > en la perspectiva de la entrada de Me'xico en el mercado internacional. Esto es, la misma base del modelo del gobierno. I hope the ball keeps rolling, as both examples posted by Jose Briones show how difficult is to present real and coherent alternatives. Sergio Negrete Cardenas.