fiscal policy and public debt

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The Role of Fiscal Policy in Contemporary Economics session at 12th International Conference


  • 1. Fiscal Policy and Public DebtEugenia CorreaEconomics Faculty, UNAM12th International Post KeynesianConferenceKansas City, MissouriSeptember 2528, 2014

2. Financial Markets doing their job ? (FT-4-09-2014) 3. Key Ideas on LAC-Fiscal Policyat the WC Stabilization through Fiscal Consolidation as acondition for Growth; Which means, abandoning fiscal stimulus policies Increase in public debt in local currencies Privatizations Decentralization Reduction and focus of Subsidies Increased Tax revenue by VAT 4. Key ideas in Fiscal Policy for LAC, today Fiscal discipline to avoid volatility, high inflationand devaluations that marked the 1980s and1990s. (IMF, WB, OCDE, etc) Moderate Fiscal Stimulus during a prolongedslump (debates about its size and duration) Created strong ceiling (fiscal superavit, descendpublic debt in local currency) during growthperiods, for eventual stimulus in long slump The conventional view is still that expansionaryfiscal policy could stimulate the economy, Country risk rating based on sound fiscal policies 5. How Have Fiscal Policies Evolved? Privatization and PPP Capital and Income Concentration For developing countries, also: - no BC loans to Government - growing rent transfers - dollarization (total or partial) / off-shorecredit circuit - Fiscal consolidation and Austericy Policies - Changes in Financial Structures: decline ofPublic Banks. 6. WC vs Now Stabilization Policies Reduction of Expenditure,except for debt service (Temporary) Increase inrevenues, byprivatizations and non-incometaxes Only sound fiscal policiescan improve a countrysrating - linked to theinterest rates of privateforeing debt Long term Sustainability ofpublic accounts Transparency of publicaccounts Privatization of Public Servicesand parts of publicadministration Goverment Debt Ceiling Privatization in Education andHealth Only responsable fiscalpolicies can improve therating, call contry risk. Thatwas no-linked to the interestrates of private foreing debt 7. LAC comprise a large region, withdifferent pasts and institutions, soLET US SEE WHAT HAPPEN WITHTHE SO CALL PINK COUNTRIES 8. Debate: Some South America governments in 00sabandoned Neoliberal Policies towardsGrowth with Stable Public Policies.(Argentina, Bolivia, Brazil, Ecuador,Paraguay, Uruguay and Venezuela) Those governments called Pink SouthAmerica countries have moved away fromIMF policy supervision. Which means lessfiscal policy constraints? Lets take a look 9. Economic GrowthLAc out-WC GovernmentsGDP per capita2003-2013Argentina 5.9Bolivia 2.8Brazil 2.5Ecuador 3.6Paraguay 3.1Uruguay 5.8Venezuela 2.9Source: Cepal, Balance Preliminar, severalyears. 10. Less Inequality ? 11. But, Less Poverty 12. Declining Public Debt140120100806040200Central Government Gross Debt(as % GDP)Argentina Bolivia Brazil Ecuador Paraguay Uruguay Venezuela LAC2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 13. Surplus Primary Balance - Public Sector 14. Surplus of General Balance before Crisis 15. Resilience in Public BudgetLA Pink GovernmentsPublic Sector Interest Payments as % of Central Government Income2003 2004 2005 2006 2007 2008 2009 2010 2011Argentina 15 10 14 12 13 13 13 7 9Bolivia 13 12 11 7 5 3 5 5 5Brazil 41 31 32 30 27 23 23 14 17Ecuador 17 15 13 13 10 5 3 4 4Paraguay nd nd nd nd 6 4 4 2 1Uruguay 28 23 21 20 18 14 14 11 11Venezuela 22 16 11 7 6 6 7 7 11Source: Cepal, Anuario Estadstico 20112010 and 2011 are Central Government 16. Preliminary Conclusions Even pink countries, havent recovered sovereignty infiscal policies. External debt: strong renegociation gave more fiscal spacefor Argentina, as the previous default crashed debt ratings Weak Fiscal Policies also mean Weak National States andGrowing Ingovernability. This also brings greater corruption and social violence? International credit markets still impose macroeconomicconditions and therefore government economic policies The political ideologies of the pink governments are leftunfillfilled in economic terms. 17. Inequality limits growth, but can eventip the system? 18.


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