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It is thus entirely plausible that the other parts of Tomz's study, which seeks to bolster the reputational theory by comparing the performance of debt repayment of sovereigns in good times and bad times, suffer from an observational equivalence problem. Tomz argues countries continue to pay "even in bad times" in order to improve their reputation, but Brazil's response during the Baring Crisis suggests that some countries might have repaid in "bad times" out of fear of being sanctioned.

Perhaps an even clearer example of why creditors repaid in earlier periods is the response of Central American borrowers to the U.

According to this pronouncement, if a nation in the Western hemisphere maintained its financial obligations, it need not have feared U. The U.

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Creditors believed the United States might intervene elsewhere and, in response, bid up sovereign debt prices for Central American and the Caribbean countries by 74 percent in the London market in the year following the announcement of the new policy. The effects of U. Countries in the region, which collectively had been in default for combined years until this point, reached agreements with bondholders and were able to issue new debt on European capital markets.

As policymakers and historians are well aware, the world of sovereign lending is messy: why countries default and then choose whether to repay is likely a function of many factors. As this book makes clear, reputation surely matters; but other factors, such as sanctions, have played an important and perhaps leading role during certain periods of history. In arguing for the primacy of reputational theory to explain sovereign borrowing over the past three centuries and dismissing the possibility that particular periods of history may be better explained by alternative models, Tomz undercuts his otherwise careful historical analysis.

For the IMF, the loan that it made available to the United Kingdom—still then the country with the second-largest quota—stood for some years as its largest. The arrangement was also one of the IMF's last with an industrial country. For the United Kingdom, as argued in Decline to Fall, the IMF—through the arrangement—"played a crucial role" in the resolution of the crisis that had erupted in The main novelty of this book is that it is based largely on recently released official British documents.

Treasury, was the leading British official in the negotiations with the IMF? Wass uses the documents now available to provide a detailed history of the making of U. He tells the story year by year, under the headings of the major policy issues public expenditure, the exchange rate, and so on , and he tells it memorandum by memorandum and meeting by meeting.

This account alone will make the book essential for students of this episode. But the study is also interesting for its review of the conduct and evolution of U. In the early s, the United Kingdom's policy framework was unlike it is today. Fiscal policy was the main tool used to regulate demand, with the principal aim of maintaining full employment, and monetary policy was supplementary to fiscal policy.

Venezuela's Suicide: Lessons From a Failed State

Inflation was seen mainly as a cost-push process: dampening it through demand measures, certainly from the 10 percent a year level it had reached in early , "would take a very long time and require substantial unemployment," which was judged unacceptable. The main instrument to combat inflation was wages policy. Wass observes, strikingly, that the Bank of England was therefore not much involved in controlling inflation. The central bank was not independent, and changes in official interest rates were constrained politically as well as by concerns about financial fragility.

The pound sterling had been floating, in a managed way, only since In late and early , this framework, already strained by inflationary pressure, was subjected to two traumas—the first oil shock, and the collapse of the incomes policy of the Conservative government as a result of strikes and an election that brought a new Labour government to power. Wass sees the origins of the crisis here, and in the commitments and policies of the new administration. In and early , with incomes policy having been delegated to the trade unions, wages accelerated and annual price inflation rose to about 25 percent.


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The fiscal deficit burgeoned, partly owing to indirect tax cuts intended to reduce inflation by promoting wage restraint, but also because public spending was planned on the basis of "wildly optimistic" assumptions about economic growth. Wass views these assumptions as a major failing of the Treasury in the run-up to the crisis, though at the time disappointing growth performance was hardly unique to the United Kingdom.

Externally, official borrowing, facilitated by the increased surpluses of the oil producers, contributed to relative stability of the exchange rate while the current account deficit widened and international competitiveness deteriorated. There was here a "confusion of attitudes" toward exchange rate policy among officials—another Treasury failing. Wass describes how, during , important policy corrections were made.

With the fiscal deficit rising toward 10 percent of GDP, increased attention was paid to its financial implications. Wass sees here a turning point in the conduct of U. There were also important reforms to the system of budgetary control, which were to begin bearing fruit in In addition, in mid, the trade unions began to enforce a "norm" for pay increases that was below recent price inflation. Wass describes this as a "watershed" in the control of inflation, albeit with a significant cost in the leverage it gave the trade unions over other elements of policy. Another example of interesting and relevant texts for our readers is the personal diary of the artist Pablo Helguera, The Boy Inside the Letter.

Also in this series we present in this series two books by Vito Tanzi who was a senior staff member of the International Monetary Fund and Undersecretary for Economy and Finance in the Italian Government. The two books we published are not written only for economists. His responsibilities required him to travel often to many countries.

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During these visits he spent untold hours in planes and airports and cumulatively months or even years in hotels. He became a truly global economist and a kind of jet age Marco Polo. His curiosity to see new places, including those of difficult access. Argentina: How one of the richest countries in the world lost its wealth: an Economic Chronicle , his first book of this nature that we have published he is the author of numerous academic and technical books is already in bookstores.


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Still, some Commercial and Financial angels have not feared to tread the ground of prophecy as to the immediate and post-bellum future of Argentina and Uruguay; and not only has competent authority not feared to forecast results in this regard, but there is a remarkable unanimity of influential opinion as to the probably favourable effects of European affairs on the economy of the River Plate Republic. Always supposing, as there seems every reason [21] to suppose, that these Republics continue to have the commercial and common sense to manage their internal affairs in such manner as to be able to derive the greatest possible pecuniary benefits from the troubles of European nations.

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One, perhaps the chief, in his courage of declaration of these prophetic authorities is Mr. Tornquist; a man having very large financial and commercial interests on the River Plate and enjoying a very high local reputation for business acumen and honour. His whole life has been spent in the higher financial circles of Argentina. Therefore the author has thought well to cite here some portions of an article published by him in the Argentine Press, a translation of which appeared in The Review of the River Plate , under date December 25th, From this chaos that of the European War there will arise perhaps an Asiatic country, and, quite certainly, some American countries, and in the first place the Argentine Republic, which, on account of the class and special conditions of its products, is called upon to benefit from the situation more than any other country in the world, as even the United States cannot export in any quantity the noble products produced by Argentina as they require them for home consumption.

Lessons From a Failed State

This war not only does not create difficulties for our economic development, as will happen to nearly all the other countries in the world, but, on the contrary, it will stimulate it, and for this reason, the longer the war lasts the more our national economy will gain at the expense, sad as it is to say it, of the countries now at war.

Whilst the war lasts the prices of the majority of our products will not decline, for many of the countries which produce the same goods as we do are at war, and on this account the demand is bound to increase. This does not mean, nevertheless, what many erroneously think, that if the next crop is good they will be able in to sell their lands in the vicinity of cities and summer resorts and speculative regions at the prices ruling when they purchased them. Nothing of this will occur, and only the value of revenue-producing property will normalize itself, and will be placed at a value corresponding to a return of 8 to 9 per cent per annum.

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On the other hand, I believe that several, perhaps many, years will pass before it will be possible to liquidate properties which do not give revenue at the prices which their owners desire. To-day these things have changed, and if any country is to interest the capitalist immigrant it will without doubt in the first place be the Argentine Republic, because it is in the best condition to receive them, especially if they are convinced that the value of property is not inflated.

It is the duty of our Government to make all this known to future immigrants by means of serious propaganda. At first sight this figure appears high, but let us analyse it.


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  5. It also represents the half of all that the country owes abroad for mortgages. There are also the various financial operations of the National and Provincial Governments and the Municipality of the capital for the payment of debt services or to consolidate the floating debt, for although money does not come to the country this will diminish by these operations the emigration of capital in respect of items b , d and e of the balance of payments, that is to say, the dividends and interest on foreign capital placed in commercial enterprises and railways, and thus also the service of the external debt, which otherwise would have to be remitted and all of which I have not taken into account.

    Besides, where will Europeans place their savings? In European bonds which continue to depreciate on account of the issue which will have to be made for the war debt and to consolidate the monetary situation? Assuredly more money will come here than many believe in search of investment. The United States with its new monetary law does not require as much as before.

    To Brazil and Chile it will not go for some time, neither to Mexico or the Balkans. The movement of the Stock Exchange will [26] reawaken—it has been dead since —and there will be money for mortgages and business, replacing that which came from abroad and which has to be repaid. All of this will bring in time an immigration of Cedulas of our external debt bonds and of railway and industrial shares. What will probably not take place for several years, perhaps for many, is what I mentioned at the commencement, namely, that land and other objects of speculation which do not produce anything will rise to prices which their owners dream about and pretend to obtain, as neither banks nor capitalists will invest their money in such objects, neither will they stimulate speculation, all of which are circumstances which will contribute to develop the economic forces of the country and to foment its industries and its commerce until there arrives for the Argentine Republic the psychological moment of being able to produce all that it consumes, that is to say, become self-supporting, without having to fall back on European industry, a situation at which the United States of North America have arrived after great efforts.

    Remains only to be added that Mr. Tornquist appears to have omitted consideration of the possibility of money being withdrawn from South America by European investors, not on account of any lack of confidence, but simply because such investors may under existing conditions have actual need of all the pecuniary resources they are able to realize. For the getting in of the harvests there has been sufficient labour available; because of the stoppage of much municipal and building work, on account of retrenchment rendered necessary by the situation. The need of this is now fully realized in both countries, but, strange to say, it is in Uruguay where there are no fiscal lands that proposals for probably useful legislation to this end have attained the greater maturity.

    It is there proposed, in effect, that the Government should purchase, at least portions of, the present holdings of the large landowners [27] and colonize the land so purchased on systems similar to that obtaining in, for instance, Canada. Argentina still has large tracts of fiscal land, but no doubt her large landowners will also aid towards the colonization by granting to colonists greater fixity of tenure and greater facilities for mixed farming than the latter have been hitherto able to obtain. With regard to Belgian emigration to the River Plate, the fact which cannot be lost sight of is that the Belgian, especially the Fleming, is a person deeply attached to his own land and his own ways of living.

    It seems certain that if Belgians of the agricultural class are to be colonized in South America, such colonization will have to be effected by means of settlements like those of the Welsh colony in Chubut and the Swiss colony in Colonia. He is not adaptable enough, in any way, to be put to live or work among the composite Spanish-Italian-American rural classes of the River Plate.

    Probably both Argentine and Uruguayan will continue to work out his own salvation in this vital matter of attracting agricultural colonists to his land. Already the spirit of democratic unrest menaces privilege in Argentina, privilege which has already been destroyed in Uruguay. And the greatest political danger which now seems to threaten Argentina and has for some time past been the bane of Uruguay is doctrinairism; a tendency to pursue to most unpractically illogical consequences theories which seem to their initiators and supporters to be destined to cure all the social and economic ills to which man is prone.

    State socialism from high places in Uruguay and socialism [28] of all kinds and varieties from lower social spheres in Argentina are each set on the adoption of its own empiric policy. Like all young things, these Republics must pick themselves up again when they fall and, in truth, they display great capability for doing so , but it would be well if, just at the present moment, they were to adopt and fully carry out some provedly sound colonizing policy. Afterwards they might experiment with single-tax, rural Banks, state ownership of land and all upon and within it, as much as they might find themselves able to afford to do.

    Meanwhile they must work patiently, in unadventurous fashion, towards the most soundly rapid possible development of their rich natural resources. During , all extension of activity was at a standstill in both Republics. Little or no land changed hands, unless under practically forced sale; city improvements and private building projects were stayed, and no new railway extensions were put under construction. A few good harvests [9] will put these things as they were; but the lesson of the War will have been lost for Argentina and Uruguay if they do not see to the matter of the extension of their agricultural industries.

    It seems, however, that they now are solidly determined to do so; and that, far from the lesson of recent events being lost for them, the finding of themselves cast on their own resources has led to a most beneficial and self-sacrificing examination of what those resources are in contrast with what they so easily might be.

    The real vitality of these countries can be measured by the fact that the prices of their National Securities, which fell with the world-wide shock of July-August, , were by the following September already on the high road to the practically complete recovery they have now attained. The political history of the River Plate Republics begins with the wars which made possible the great Declaration of Independence from the dominion of Spain on the 25th of May, Their most romantic history is that of those wars and that of the old Colonial days immediately preceding them.

    Having overthrown the rule of Spain the former River Plate colonies became involved in a long internecine struggle for supremacy of power. For fifty years the United States of the River Plate were most disunited by local jealousies and the rural districts were only usually unanimous in their refusal to submit to the Government at Buenos Aires, composed of men who, as the rural populations said with a great amount of truth, were endeavouring to rule even more despotically than did the Viceroys and by purely Viceregal methods.

    Were that submitted to, the revolution would have been in vain as far as concerned the substitution of democratic principles for those of tyranny. This was no doubt true, for the politicians of Buenos Aires neither knew, nor had had any opportunity of knowing, methods of Government other than those under which they themselves had been brought up.

    enter site Had they known it, though it is only [30] just to them to say that they did not in the least realize the fact, rule under them in the way they proposed to rule, would have been merely an exchange of King Stork for King Log. The country was, however, quick to grasp the menace, and it is only very regrettable that rivalry between its several contemporary would-be saviours produced so long a continuance of political chaos, during which newly acquired Liberty and Independence had no chance to develop the vast natural resources which had lain idle in consequence of the Spanish policy of squeezing the life out of the goose which would otherwise have laid so many golden eggs for Spain.

    In consequence of civil war it was, as has been indicated, not much before that it began to lay any appreciable number of such eggs for itself or anyone else. Both were strong men and patriots; and both held power, in spite of opposition both open and treacherous, for, as later history has shown, the good of the respective territories they had brought under their sway.