Sunday, March 29, 2015

Commodities prices and Latin America economies

Commodities prices has been declining.This means that those economies whose public budget depend upon commodities prices , will have troubles to make the balance whether public expedenditures keep the pace without adjustment. But ,the implications of this situation go even further : a.- According to the Interamerican Development Bank, there is a reasonable probability for latin american economcies to have a lower rate of economic growth, in case that Europe, China and Japan have also lower economic growth than expected.The decrease in the rate of economic growth though ,is different within different groups of economcies, such as those oil exporter. metal exporter and so on.The estimated average economic growth for South America is 3,8%( (2015-2017), in the best scenario,and 2,9% in the weaker scenario.- b.- If the USA economy keep the pace even with higher interest rate, economic growth for South America would be 3% instead of 2,9% according to the EDB.(source : c.- Foreign investment could be affected in commodities sector, because of commodities prices volatility.So, even it is not that much relevant its share in these countries ´s GDP, the ECB suggest better policies to manage prices uncertainty.- d.- The more complex problem for those econimies more vulnerable to commodities prices fluctuations, is to adjust expenditures, and the path they will follow to implement it, unless the get external financial resources , but sooner or later expenditures will have to be revisited.This will put more pressure on economic growth, to the downward side specially if affects consumption. The positive side of the story is that global economy seems to have found the track of economy growth back from the financial crisis of 2008.In Europe, Germany and Spain are in the position to lead the recovery to a more sustainable level, and lower prices of oil will push that performance further.-

Sunday, March 08, 2015

The Strenght of free market policies:to fullfill its promises

How come that it is not usual in Latin America presidential elections, for free market ideas, to take control of government policies?. What make free markets ideas weaker , such that it does not get good voters approval? These two questions arises, because of the recent presidential elections in Latin America, none were for candidates who believe in free markets ideas. Instead, in all cases a stronger role of the State prevailed. The empirical evidence available, shows that as far as the outcome is concern, free markets proposals ,overcome those arising from more an active state in the economy. The explanation for it, goes on the line of which of the two proposal, has the ability to provide better chances for steady economic progress and wealth accumulation: a.-Given an institutional framework, free markets work, on the basis of self coordinated actions and decisions made by individuals, with no other purpose than to increase the outcome they get, which otherwise would not be possible to get it alone. The key for such outcome ,is to have an institutional framework effective enough, to guarantee that the decisions process goes smoothly toward its wealth objective, which as a by product can generate value and innovation.- b.-On the other side, the State is vulnerable to be captured either by politicians , bureaucrats, or special interest groups, which change the path of public policies to their own purposes instead of the whole community. Besides the risk of corruptions, make it more difficult for the State to keep close to its promise of well being for everyone. By its nature, the State must keep distance from those risks of being captured, limiting itself to fulfill the effective conditions. This means, to do what it have to do, with a sense of Social responsibility. After all, markets need the State to do the complementary task of correcting its failures. If the State fail because it has been captured, the whole society have a welfare loss. However, the outcomes of recent elections in Latin America, seem to suggest that voters prefer to stay away from policies dealing with free markets proposals. But does this means that they really prefer more State?. Given the performance of markets and the State, the only explanation for this adverse selection, is that voters look for some kind of protection. If voters do prefer protection over well being, it means that they get the wrong message about free markets ,which based on freedom suggest that it assumes everyone is in the same possibility to take advantage of their freedom. Some people obviously are better off regarding freedom, because they have better education, good quality social networks , accumulated wealth and so forth. Those who do not, because of poverty, hunger, mal nutrition and the like, will stay behind, depending upon some one to give them, what they can not get by themselves. They do not know what freedom is about. They live on their fears, instead of the their freedom.- Thus, what matters most for voters are not the appealing of free markets outcome elsewhere, but how these ideas and policies , may give them better protection than the one arising from the State promises, which as it has been demonstrated by past experience, most ot the time are just that, promises.-