This is not news, certainly. But I think it's important to have it in mind all the time. It's of utmost importance for both those who earn income in the US currency and those who live in countries forced to have their reserves in that currency too.
IMF's Rato-Dollar overvalued despite orderly slide
Sat Oct 20, 2007 7:25pm EDT
WASHINGTON (Reuters) - The dollar is overvalued in the medium-term even though it has depreciated in recent years, and markets are betting on the greenback to fall further, International Monetary Fund Managing Director Rodrigo Rato said on Saturday.
"In the medium term, the dollar is overvalued," he said at a news conference, adding "the markets are also betting right now that the dollar is overvalued."
He said the decline of the dollar, which has shed some 8 percent against the euro this year and hit a record low against a basket of major currencies, has been orderly and added that the exchange rate is set by markets.
"And in that respect, he said, "markets can behave differently sometimes than economic analysis".
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Tuesday, October 23, 2007
Sunday, October 21, 2007
An article by former President Sanguinetti
I decided to translate this article by former President and current Senator Julio M. Sanguinetti because in my opinion he does a sharp analysis of the prevailing mindset in the Uruguayan government today. I hope this translation doesn't betray the main concepts and views he expressed in the original article.
EL PAÍS (Montevideo) – Oct. 21st, 2007
Poor middle class!
by Julio María Sanguinetti - Ex President of the Republic
In the 60s, Antonio Grompone —a vigorous mind of his time— stated that “in number, economic activity, mentality, problems, ideals, Uruguay is a middle class country”. He was speaking, as it's seen, of something bigger than income or occupation: a very diverse expression of society, ranging from a commerce employee to a medical doctor, from a government employee to a middle-range industrial manager, from a small bussines owner to a teacher or a member of the military, all of them identified, however, by a set of values, habits, beliefs, that defined the nation itslef. The poor wished to reach that level and the rich —which have never been too many in relative terms— hardly showed the arrogance to proclaim a different life concept, though they had the means to afford luxuries forbidden to the rest.
Later, Aldo Solari researched deeply this issue, being a pioneer in forecasting the aging process of our population. In recent years, with the relative decline of the industrial population and the vertical increase of the so-called services sector, a generation of young sociologists have tried to identify new features, but the fundamentals have not changed: Uruguay still has a middle class that exceeds half of its population; more than a homogenous group, identified only by occupation or income, is a diverse mass that has elements in common, specially in mentality —basis and sustenance of a peaceful democracy. That is the reason why, when the 60s were disrupted by the outbreak of the messianic violence of the guerrillas, ended in a deep institutional crisis.
The middle class remains the support of what Uruguay is as a nation. Historically, our national income distribution has been, therefore, the best of the continent, and the famous Gini coefficient, which measures it, always showed us as a society much more equitable than the one of the Brazilian great neighbor and also more balanced than Argentina. Today, with a self-styled “progressive” government, which has been already in office for two and a half years, the distribution remains the same, rather worse, and the only achievement, despite the tremendous growth coming from the foreign markets, is a very small decline of poverty, articulated on the basis of government contributions —for example, the “Plan for the Attention of the Social Emergency”— which as soon as they cease, they will leave everything worse than before.
The issue is that this middle class today feels attacked, ignored, even offended. They verify that in the present Uruguayan society, you are better off occupying a dwelling, getting ilegally connected to the electrical power network and not paying for water, forgetting the social security and taxes, because nobody will come to collect anything, while the poor citizen —even the most modest one— who lives within the formal economy, is becoming increasingly tortured. That the State is heavy is something we already knew, and we tried to remedy this, but the issue is that now this has been transformed into a proudly explicit policy; one that hits so repeatedly the same people, that it seems encouraging the emigration of the youngest ones.
Today, a young man with a one-person bussines, working in the computing field or providing a certain service, if he wins 30.000 pesos, for example, he has to pay around 1.900 pesos in social security, around 5.400 for VAT and more than 2.000 for the new personal income tax, which will be combined with the new tax on health, which starts between l,5% and 3% at this stage, and will reach 6% later on. So the State takes from the example's guy more than half his income. Does anyone think this encourages anyone to keep on struggling? Some might say that in the developed world taxes are too high, which is true, but for much higher levels of income, leaving a remainder far more satisfactory.
The health system deserves a paragraph for all it has of mistaken philosophy. What now is just an initial step, because they could not fund the original program —that terrible coercive system in which the right to join where you wanted to, was abolished. Those excesses have been postponed for the time being, because the explicit purpose is to go to a socialized system in which we will equalize downward. The rich will manage to get health care by their own and will take this as another tax, while the rest will be slowly falling into a system increasingly degraded. A National Board of Health takes control of the entire economic life: the “mutual associations” will not be charging anyone but the social security, there will not be competition anymore for quality since all the mutual associations will be paid the same, their investments in technology and infrastructure will be decided by the authority, and thus there will be only façades of institutions, which will not even be permitted to advertise under the law, all of them ruled by a sort of Big Brother installed in an office of the Ministry of Public Health.
That middle class we are talking about is also the largest generator of employment through small bussines, run by citizens who receive a good salary rather than big dividends. Now they are punished by the personal income tax and the new health system, while introducing new rises in the Real Estate Contribution, with these systems of distributive justice that end up being deeply arbitrary. In a country where 65% of the population live in their own house, one of the traditional aspirations of the average Uruguayan, the contribution is not a small thing, especially in a Montevideo already very expensive in municipal terms.
On all these issues you have to add the threatened public safety and an inflationary avalanche that is shaking everyone, despite these cosmetic efforts made by the government, trying to lower a bit the prices which are taken into account for the statistical index. (In other words, we do not subsidize the transportation tickets across the country, because it is very expensive, but we do so only in Montevideo because it is taken for the index). That is: the fight is against the official number, not against inflation, which should be actually fought by stopping a growing public expenditure, that increases day by day with thousands of employees entering the state and also with the costs of that makeup.
The corporatist, collectivist mindset, which sets the culture of those who govern us, emerges every time. Marxism is no longer explicit, because nobody believes in it. The communist authoritarianism is the old fashioned dream of just a small nucleus. But that equalizing downwards mentality, which is suspicious of individual initiative, hates healthy competition and, as a result, despises quality, that mindset is wrapping us step by step, and is what lies, deeply, at the bottom of this policy that hurts the heart of our society.
EL PAÍS (Montevideo) – Oct. 21st, 2007
Poor middle class!
by Julio María Sanguinetti - Ex President of the Republic
In the 60s, Antonio Grompone —a vigorous mind of his time— stated that “in number, economic activity, mentality, problems, ideals, Uruguay is a middle class country”. He was speaking, as it's seen, of something bigger than income or occupation: a very diverse expression of society, ranging from a commerce employee to a medical doctor, from a government employee to a middle-range industrial manager, from a small bussines owner to a teacher or a member of the military, all of them identified, however, by a set of values, habits, beliefs, that defined the nation itslef. The poor wished to reach that level and the rich —which have never been too many in relative terms— hardly showed the arrogance to proclaim a different life concept, though they had the means to afford luxuries forbidden to the rest.
Later, Aldo Solari researched deeply this issue, being a pioneer in forecasting the aging process of our population. In recent years, with the relative decline of the industrial population and the vertical increase of the so-called services sector, a generation of young sociologists have tried to identify new features, but the fundamentals have not changed: Uruguay still has a middle class that exceeds half of its population; more than a homogenous group, identified only by occupation or income, is a diverse mass that has elements in common, specially in mentality —basis and sustenance of a peaceful democracy. That is the reason why, when the 60s were disrupted by the outbreak of the messianic violence of the guerrillas, ended in a deep institutional crisis.
The middle class remains the support of what Uruguay is as a nation. Historically, our national income distribution has been, therefore, the best of the continent, and the famous Gini coefficient, which measures it, always showed us as a society much more equitable than the one of the Brazilian great neighbor and also more balanced than Argentina. Today, with a self-styled “progressive” government, which has been already in office for two and a half years, the distribution remains the same, rather worse, and the only achievement, despite the tremendous growth coming from the foreign markets, is a very small decline of poverty, articulated on the basis of government contributions —for example, the “Plan for the Attention of the Social Emergency”— which as soon as they cease, they will leave everything worse than before.
The issue is that this middle class today feels attacked, ignored, even offended. They verify that in the present Uruguayan society, you are better off occupying a dwelling, getting ilegally connected to the electrical power network and not paying for water, forgetting the social security and taxes, because nobody will come to collect anything, while the poor citizen —even the most modest one— who lives within the formal economy, is becoming increasingly tortured. That the State is heavy is something we already knew, and we tried to remedy this, but the issue is that now this has been transformed into a proudly explicit policy; one that hits so repeatedly the same people, that it seems encouraging the emigration of the youngest ones.
Today, a young man with a one-person bussines, working in the computing field or providing a certain service, if he wins 30.000 pesos, for example, he has to pay around 1.900 pesos in social security, around 5.400 for VAT and more than 2.000 for the new personal income tax, which will be combined with the new tax on health, which starts between l,5% and 3% at this stage, and will reach 6% later on. So the State takes from the example's guy more than half his income. Does anyone think this encourages anyone to keep on struggling? Some might say that in the developed world taxes are too high, which is true, but for much higher levels of income, leaving a remainder far more satisfactory.
The health system deserves a paragraph for all it has of mistaken philosophy. What now is just an initial step, because they could not fund the original program —that terrible coercive system in which the right to join where you wanted to, was abolished. Those excesses have been postponed for the time being, because the explicit purpose is to go to a socialized system in which we will equalize downward. The rich will manage to get health care by their own and will take this as another tax, while the rest will be slowly falling into a system increasingly degraded. A National Board of Health takes control of the entire economic life: the “mutual associations” will not be charging anyone but the social security, there will not be competition anymore for quality since all the mutual associations will be paid the same, their investments in technology and infrastructure will be decided by the authority, and thus there will be only façades of institutions, which will not even be permitted to advertise under the law, all of them ruled by a sort of Big Brother installed in an office of the Ministry of Public Health.
That middle class we are talking about is also the largest generator of employment through small bussines, run by citizens who receive a good salary rather than big dividends. Now they are punished by the personal income tax and the new health system, while introducing new rises in the Real Estate Contribution, with these systems of distributive justice that end up being deeply arbitrary. In a country where 65% of the population live in their own house, one of the traditional aspirations of the average Uruguayan, the contribution is not a small thing, especially in a Montevideo already very expensive in municipal terms.
On all these issues you have to add the threatened public safety and an inflationary avalanche that is shaking everyone, despite these cosmetic efforts made by the government, trying to lower a bit the prices which are taken into account for the statistical index. (In other words, we do not subsidize the transportation tickets across the country, because it is very expensive, but we do so only in Montevideo because it is taken for the index). That is: the fight is against the official number, not against inflation, which should be actually fought by stopping a growing public expenditure, that increases day by day with thousands of employees entering the state and also with the costs of that makeup.
The corporatist, collectivist mindset, which sets the culture of those who govern us, emerges every time. Marxism is no longer explicit, because nobody believes in it. The communist authoritarianism is the old fashioned dream of just a small nucleus. But that equalizing downwards mentality, which is suspicious of individual initiative, hates healthy competition and, as a result, despises quality, that mindset is wrapping us step by step, and is what lies, deeply, at the bottom of this policy that hurts the heart of our society.
Monday, October 15, 2007
TRADE, NOT AID
TRADE, NOT AID
Billions of dollars in international aid have been poured in the so called “Third World” —a name which covers too many different realities. Albeit this aid, extreme poverty and violence still ramble in the “benefitted” countries. An aid that most of the time ends up in the hands of corrupted dictators, war-lords and/or NGOs which make from poverty their business.
At the same time, the most powerful economies deny the weaker economies the chances of trading freely their produce. By doing so, they are not only denying basic liberties but contributing, decisevely, to the constant reproduction of poverty.
The US economy is not an efficient rice producer. So, the growers receive important federal subsidies. The US pours the rice overproduction in the world market, subjecting the efficient rice growers to an unfair competition, keeping them from entering certain markets or making them to aceept a price that does not cover the costs of production. For example, Uruguayan rice has been severely affected in the Brazilian market because of the artificial price of the US rice.
The economies of the so called G-7 pay lip service to poverty but at the same time do not open their markets to the more effcient produce of the poorer countries. At the same time, they force those economies to respect intellectual property rights (which is correct), open up to the imports of goods and services from their economies and enforce legislation regarding the environment, the labour force and the taxing system, no less than equivalent to those existing in the “First World” countries. The purpose is to strip off the weaker economies of some of their competitive advantages.
Free trade brings cooperation between individuals, builds citizenship and sense of self dignity. The opposite means violence, war and poverty. And no aid can change it.
We, the "devoloping" countries, need trade, not aid.
Billions of dollars in international aid have been poured in the so called “Third World” —a name which covers too many different realities. Albeit this aid, extreme poverty and violence still ramble in the “benefitted” countries. An aid that most of the time ends up in the hands of corrupted dictators, war-lords and/or NGOs which make from poverty their business.
At the same time, the most powerful economies deny the weaker economies the chances of trading freely their produce. By doing so, they are not only denying basic liberties but contributing, decisevely, to the constant reproduction of poverty.
The US economy is not an efficient rice producer. So, the growers receive important federal subsidies. The US pours the rice overproduction in the world market, subjecting the efficient rice growers to an unfair competition, keeping them from entering certain markets or making them to aceept a price that does not cover the costs of production. For example, Uruguayan rice has been severely affected in the Brazilian market because of the artificial price of the US rice.
The economies of the so called G-7 pay lip service to poverty but at the same time do not open their markets to the more effcient produce of the poorer countries. At the same time, they force those economies to respect intellectual property rights (which is correct), open up to the imports of goods and services from their economies and enforce legislation regarding the environment, the labour force and the taxing system, no less than equivalent to those existing in the “First World” countries. The purpose is to strip off the weaker economies of some of their competitive advantages.
Free trade brings cooperation between individuals, builds citizenship and sense of self dignity. The opposite means violence, war and poverty. And no aid can change it.
We, the "devoloping" countries, need trade, not aid.
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