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659 sats \ 8 replies \ @faithandcredit 22 Apr 2023 \ on: Argentina, The house of cards is beginning to sway. bitcoin
how hard can it be to fix your currency? seriously :D
extremely hard.
When you don't have a reserve currency and world trade is done in someone else's money, what you can do is limited. They need dollars to serve debts, which are denominated in dollars. The debt-givers - that same IMF they keep running with here - forces them to sell everything of value they have and invest in resources only, as conditions for the loans.
That means they can't create much value-added production in the country. Meanwhile, the world market prices for their resources are out of their hands.
They get less inflow than outflow in dollars, those dollars appreciate, meaning they get fewer dollars for their resources, which again cuts their funds inflow. All the while the interest on the debt, also in dollars, of course, keeps rising.
This is a dollar/international financial system problem which systematically leads to all developing countries' currencies to fall over time against the dollar and euro - as that upholds the luxury living of the north by making southern resources dirt cheap. It's a racket.
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someone's been listening to the Saifedean podcast
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The peso is a racket. It could be solved tomorrow by eliminating the BCRA.
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and invest in resources only, as conditions for the loans
Yes the IMF puts conditions for loans, but what do you mean by "invest in resources only" or where did you get it from?
I despise the IMF but it's the first time I hear "conditions" like that.
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longer story.
Up until the 60s/70s, the dominant development strategy for emerging economies was to industrialize; industry and production create high value-added products you can sell abroad, creating wealth.
The problem with this is a) this creates competition for developed economies and b) it raises incomes and wealth levels in these countries, making their use for cheap labor and resources for the north very difficult. Thus, it was in the interest of developed countries to prevent this.
Added problem now: if you talk about "free trade" all the time, imposing import regulations on products by these countries is politically difficult on the right. If you talk about "helping development", putting the brakes on them is politically difficult on the left.
So, miraculously (ahem) the global development paradigm changed after the 70s (this is what people talk about when they throw the word "neoliberalism" around). With reference to the economic theory of competitive advantage, the argument became: hey, Chile is really good at getting resources out of the ground, really cheaply (why? shhh, don't ask). It's not really good at making cars. It should invest in what it's good at. If they're in economic peril, we have to help them make money with what they're good it. Thus, a loan application for a factory, for train infrastructure that doesn't just run from the mine to the port? Crazy! You'll lose money!
Yes, now, you will; in 20 years, you'll do a lot better with it. But in the short term yes, this is a bad investment. But without it, you'll never get started. And, also, you'll never become a competitor for the developed world, and will keep producing cheap resources for northern industry.
The IMF, as a fundamentally neoliberal institution, works on this paradigm. It makes an analysis of how they can make more dollars to repay the loans (all the IMF really cares about), and resources it is.
But local governments often collaborate willingly as well: the quick resource buck allows them to build a few more buses now and maybe fix the roads. Developing a productive economy takes patience and longer term planning, but would allow you to develop a high speed train network that is the envy of the world in 20 years.
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By the way: in Argentina the agricultural sector has historically been neglected by the government, which heavily tax them. The rail system for transporting commodities to the ports is completely destroyed. That is kind of a counterexample to what is supposed to happen with IMF influence. All the IMF money ends up in spending to buy votes - not investment.
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Thank you for the explanation. I think you're right and this is why democracy and politicians will never get us out of this hole, as democracy is only a short term PR game.
It's not all IMF's fault though, this exists way before the 60s. In Argentina they have been talking about the "modelo agroexportador o industrialización" since at least the 1910s. The lack of strong property rights and a junk currency played a large role in the lack of longer term private investment.
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Why would they want to fix their currency?
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