Fiscal Policy Rules (II)

It has been argued that Free capital flows, exchange rate regime and autonomous independent monetary policy do not fit well along the economic cycle. In fact, those targets cannot be achieved simultaneously .Sooner or later,one of those variables has to be modified for keeping monetary policy effective enough such that the aggregate economic activity stay stable. This is the impossibility triangle, based upon fiscal policy fully effective with fixed exchange rate, and monetary policy fully effective with flexible exchange rate, ruling out the chance of both a coordination and complementary policy mix. If an economy want to achieve an autonomous interest rate policy, and stabilize the exchange rate at the same time, it has to introduce capital controls. Mundell(1963) But what a difference does it make the Budget Surplus rule ?.Capital flows have an impact on exchange rates in smaller economies. From the financial point of view, keeping everything else constant, exchange rate fluctuations depend on capital inflows(appreciation) ,or outflows (depreciation). These exchange rate variations are not neutral. Leaving aside distributive effects, these variations have an impact on both those firms with heavy foreign currency debt after the depreciation,and the competitiveness of the exports sector due to appreciation. Thus ,given exchange rate fluctuations,the monetary policy should change the interest rate to cope with its implications, but as long as it lacks complementary fiscal policy, it has to deal with key constraints which affect its independence and effectiveness. Given floating exchange rate regime, the options are increasing interest rates(exchange rates depreciation) or reducing interest rates(exchange rates appreciation), and along with it the risk of deeper aggregate demand contraction in the former case(increasing interest rates), or an over expansion of aggregate demand in the latter case(reducing interest rates).In both cases, external surplus adjust itself to the new foreign relative prices . But monetary policy, is constrained in its ability to reduces volatility on aggregate demand sector arising from exchange rates fluctuations, so the magnitude of interest rate adjustment must be evaluated beyond its target of external balance, to deal with internal balance or domestic economic stability which is the scope of Fiscal Policy .- In a case contractive monetary policy(higher interest rate) is applied, a fiscal policy rule (Structural budget surplus rule) can mitigate the impact on domestic economic activity, because it allows self-stabilizing factors to take place,allowing monetary policy to focus only in its own target. Previous public saving are available for countercyclical spending, reducing the impact on domestic activity of higher interest rates and along with it a better risk control of a recession.In the other case (lower interest rate), the rule of saving the excess of income over the cyclical adjusted expenditures,compensates the expansionary pressures in aggregate demand, allowing such a countercyclical action to keep internal balance. Therefore, with this fiscal policy rule, monetary policy has a back up for more flexibility and autonomy to manage the effect of capital flows fluctuations. The argument can go even further with the “sudden stop” scenario. Calvo (2003).The expected reaction of monetary policy in such a case, can be complemented in the short run with the Structural Budget surplus rule, softening the impact on growth. Piasecki & Wulf, (2013) The Chilean evidence,support that the fiscal policy became less correlated with the economic cycle after the structural budget surplus was applied, decreasing from 0.77 (1990-2000) to 0.57 (2001-2011). Therefore, a countercyclical fiscal policy ,complements properly monetary policy in such a way that output volatility decreases (Larraín, 2011).Furthermore, it make work the three variables of the triangle: exchange rate regime, the capital flow and the independent monetary policy, in such a way that it ends up reducing the welfare loses arising from unexpected capital flow fluctuations. In the Chilean economy, the gross debt/GDP ratio,decreased from 23%(1990-2000) to 9% (2001-2011). Besides, a responsible fiscal policy demonstrated public commitment to stability. That reputation for responsible fiscal policies ,translated into the ability to borrow money at favorable (lower) rates, since lenders look at the overall health of the economy, and its ability to manage its resources wisely as a proxy for lower risk level.(Frankel ,2011).In Chile, between 1999-2011 borrowing costs, went down from 7% ( 1999), to 3.35% (2011) (Larrain, 2011). Furthermore, Fiscal policy rules improves international credit worthiness as long as it decreases risk level of the economy. .(Graph 10 below country risk,Chile ;Latin America and EMBI).In fact when fiscal surplus was 4,5% , the EMBI for Chile was the lowest(2005) ,while with fiscal deficit of -4,2, the EMBI was the highest (2009) with a correlation coefficiente of -0,63.(Graph 11 below,EMBI (Blue line) ;Fiscal deficit/surplus Red line).This correlation coefficient is higher, than with those other variables,such as Debt/ GDP,International reserves or economic growth. Salas (2018) From the above, it follows that within the Mundell –Fleming framework, fiscal polciy may get external funds at a lower cost, instead of internal borrowing to finance an expansionary stand .This means that quite on the contrary to what that model expect, domestic interest rate do not rise up, as well as neither the external rate .The external rate of interest stay the same level, because in the international financial markets a small government borrowing, means a tiny amount of financial resources with a small share to have any impact on that rate within trillions of daily transaction. The interest rate parity conditions do not change,as well as it does not the exchange rate.It follows that the fiscal policy expansion impact positively on output.The foreing borrowed funds into domestic foreign market couple with those which normally outflow. Besides the channel of impact arising from higher output(everything else constant), may adjust downward the magnitude of output increase but still on the positive side. Thus with structural budget surplues rule, fiscal polciy may have an impact on output even with flexible exchange rate.So in this case, policy makers have a their disposal both policy instrument, allowing the Tinberger rule to be fully considered, and the monetary policy to have more autonomy . Finally, following fiscal policy rules fully pay off over time.It fits better with unstable external conditions both financial and real ones , and it disminishes the welfare losses arising from volatility in economic growth.-

Fiscal Policy Rules (I)

Fiscal Policy in Latin America for most of the twenty century, was the first hand government tool-kit, for winning elections.So, the fiscal deficit arising from it, implied negative consequences for the economy, as long as it fostered conditions for disestabilization forces such as, volatile economic growth and lower credit worthiness which sooner or later, become also a threath to democracy and its values.Lozano (2008). Besides, the implications were not just inefficiency and instability .Given the Tinbergen policy rule, the fiscal policy became the missing policy for macroeconomic targets, which none policy makers could count on, other than to sustain deficits. Somehow, policy framework were constrained by steady fiscal deficit to display fully its economcis tools. It follows, that in such a case, fiscal policy failed to fullfil its main focus : Internal stability. Better coordinated economics policies becomes a goal very hard to get, whether one of the key policy, was not elegible to fit in the coordination framework, which is non neutral for macroeconomic targets as long as assuming a fiscal policy more rational than it really is generates a target bias. It is usual to consider fiscal policy, as an autnomous exogenous variable, but politically willing to move toward stability,therefore capable of adjusting itself to macroeconomics targets.A good example of this approach, is the fiscal policy rules implemented by the European Union, which set a limit of 3% for deficit, which monetary policy can count on.But in Latin America,the situation was different, becasue there was no limit to fiscal deficit, which measured it againt tax incomes ,it usually was well over that percentage range.Therefore, changing the focus of fiscal policy away from short run interest, to focus more on long run purposes,become a matter of either gains or losses of welfare (Gavin, Michael, and Roberto Perotti. “Fiscal Policy in Latin America.” NBER Macroeconomics Annual, vol. 12, 1997, pp. 11–61. JSTOR, www.jstor.org/stable/3585216.). Thus, on the other side of a coin, fiscal policy based on budget surplus, has implications and consequences for the policy mix and output outcome,specially in a small open economy with free capital flow.Piasecki & Wulf (2014). The surplus policy, allows higher spending as a countercyclical resource without additional debt, which keep credit worthiness within the range of country risk measured by qualifyng agencies . So, it allows Governement to count further on foreign sources, as substitute to internal borrowing, for financing expected domestic spending. In Latin America Economies, Chilean economy has the most relevant evidence about the impact of such a policy: It became a public surplus country, and net creditor.This led to improve Chile credit worthiness, and made fiscal policy, more effective than some economics model anticipated, for a smal economy with flexible exchange rate and free capital flows .(Piasecki ,2014 et al. On the other side, when government debts increase, interest payments goes up as a proportion of the country’s Gross Domestic Products (GDP).Moreover, the interest payment, imposes an additional burden on the country’s risk level, and the fiscal balances. Besides, it does constraint monetary policy decisions, when it needs to use interest rate as a tool for stabilization purposes.A rise in the interest, means that an higher proportion of government revenues, will cover financial costs, rather than being used for the country’s social and investment needs. The consequence, is a reduction in the economic growth potential.Furthermore, it leave monetary policy in the situation of self inflicted damage.

Latin American economies are staying below trend

As the 2019, get into the second half, it starts the performance evaluation about real economic growth, and the one expected at the beginning. Most of the GDP growth forecast had to be revisited downward . IMF expected 1,4% and now it is adjusting it toward 0,6%. ECLAC was not too much different from an initial estimation of 1, 3% for 2019 to an adjusted one of 0,5%. This percentages are below the global GDP growth of 3% expected by the United Nations for 2019 and 2020, and the 3,2% expected by the IMF. This means that while the rest of the world keep the pace of steady economic growth despite trade negotiations and geopolitical risk, Latin America economies are staying behind.- What it may appears like a transitory situation, it has become a permanent one. Some data illustrate this statement: Between 2014 and 2018 Latin America economies growth were on average 0,6%.Since 2000 up to 2016 , economic growth in Latin America economies were 2,8% ,almost half the economic growth in the same period , for 56 emerging economies excluding China . The decade 2010-2018 does not show anything but disappointing outcomes, it was just 2,3% with low interest rate for most of that period, and steady global economic growth. Thus Latin America has a long run trend to lower economic growth, while the rest of the world, seems to keep its stand in a better shape.- When it comes to find explanations, the list is not a short one: a.- The most important economies of the region (Argentina , Brazil and Mexico), have not been able to take the lead to boost regional economic growth.- b.- External demand for commodities, have been hit by lower pace for economic growth of its first global consumer (China).- c.- Main primary export prices have fallen , reducing export incomes for those countries (the majority) whose export are heavily concentrated on commodities. In fact according an ECLAC study (2015), income elastic of exports to China and the rest of Asia is 2,3 which mean that higher incomes level in Asia, has a relevant impact on Latin America exports response. So , a drop in China economy incomes due to lower economic growth, means an important negative effect on those economies whose exports depend upon that country.- What about options? a.- It seems clear the Latin America has to move away from exporting just commodities. More so whether these depend of the economic growth pace of a kind of a monopsony consumer. Latin America economies, should move to become a services facilities provider such as, housekeeping, environmental services, and janitorial services spanning health care, hospitality, education, governmental, and many other facility sector, (www.ieha.org), Floor care, carpets maintenance, emergency cleaning, Window cleaning and so forth(www.latinamericansvc.com ).Insurance and micro finance sectors, also has a relevant potential to take into account. b.- To support foreign investment in those key areas which are inputs for both strategic commercial and trade links between the Atlantic and the Pacific market, such as Central America, or those economies with high market potential, such as Brazil, Mexico , Argentina, Colombia , or those ones better endowed with services facilities to connect east and west trade flows (Chile ,Uruguay and sooner than later ,Peru) . c.- The problem with (b) is that of all those possibilities, the real ones are just a few. However, there are some positive signal in Brazil(109 out of 190 economies with better facilities to do business).Mexico is finding its way out of the neoliberal experience, which means tough choices when it comes to deal with investment needs to overcome inequalities. This investment flows, come from private sector. Argentina is at its own cross road. So it looks likes the past has a stronger appeal to decide what it is more convenient.- So , the problem it is not that Latin America economies lacks options, but rather which are the ones to be considered.-

Latin America Banks: The drivers of growth

Ten years ago, Latin America Banks were well off the danger zone , while their world leaders counterparts were right on the middle of the financial Hurricane(2008).Most of the analisys were focused on the way to get through it all, but very few attention was even posibble to consider to look for explanation about Latin America Banking which seemed to be outperformance by any standard within the banking industry.Somehow these banks were consider to be underdeveloped just the way the markets they were focused on.Perhaps that assesment was representative of most banks in Latin America at that time, except for one key fact: these banks had a better sense of covering the systemic risks arising from the drivers of economic growth, specially risk seeking behaviour. As economic growth move up profit expetations, so it also push up risk tolerance. So , those banks with higher risk exposure because of its demographic scope such as to have 90% of population with bank accounts, go along with the sistemic risk. As soon as it comes along a sudden stop in economics growth, so it brings down riskier banks with it. Brussels righlty thought that in such a case, it was necessary to have stronger insurance policies,(higher capital provisions), which was equivalent to make Banks less prone to systemic risk. This meant Banks became like the counter cycliccal filters of the systemic risk , instead of being the cyclical follower of it.That approach imply that while the economy is booming, Banks move cautiously with credit policies.On the other side, while the economy is weak , banks support the economy with more flexible credit policies.It is like the other side of a coin regarding the interest rate movements during economic cycles: High while it is expansive, low while it is recessive . Mc Kinsey & Company (www.mckinsey.com), just released (July 29, 2019), a report about Latin American retail banking markets with interesting remarks, which comes as a reminder that it is not just to arrive first , but also to arrive well prepared. The major findings shows that while ROE (Return on equity), between 2011-2018 was in the range of 8-10% for global bank industry ( in some cases with negative interes rate), Latin American retail banks ROE was 12,8% between 2012-2017 with consumer finance as the leading driver for such outcome. Latin American banks as a whole had a ROE of 14% in 2017. Which are the explaining factors?.The same report explores some hypothesis which are revisited below: a.- Latin american banks have a low risk demographic exposure. Only 30-40% of population over 15 years old, has a bank account. What they lose in terms of scope, they gain in terms of risk control. Banks in Developed countries, have up to 90 % exposure to a wider demographic segment. b.- Growing population in the lower range age segment (25-35 years old), which means new younger workers on their way to get a job with potential rise in earnings. Quite on the contrary to the developed countries Banks which have older workers closer to retirement and looking for saving instead of spending.Young workers represent fresh look for new opportunities most latin american Banks look for. In fact when it comes to microloans , Latin American countries like Peru are among the leaders in that sub markets.- It is also interesting to realize that there are association betwen Banks size with ROE and its variance. Thus, small Banks(43,7% of the sample) , have lower ROE (3,9%) and higher dispersion. Medium (24,5% of the sample),and large size banks(19,6% of the sample), have 13,1% and 13,6% ROE respectively and average dispersion and depending upon revenues, while Leaders Banks (12,0% of the sample), have higher ROE (15,2%), coupled with lower dispersion and depending upon efficiency. However, no matter the positive outcome, there are also some weakness: Mc kinsey report states the following weakness for retaiol banking in Latin America a.- Lower cost efficiency b.- Lowwer asset quality c.- Lower provisions over asset(1,1%) It follows that there is also a consistency between Bank risk behaviour, and the quality of the insurance policy to support it However, the main result is that Latin American Banks will be the growth leaders among global markets banking system through 2022.This means that services sector in Latin America, may become the new driver for economic growth.-

European Central Bank: Its key role

The ECB started in 1998 following the Treaty of Amsterdam . The European Central Bank came out after the European Monetary Institute (EMI) which had been set at the second stage of the Economic and Monetary Union (EMU), to handle transitional issues concerning the implementation of the Euro as a currency. The European Central Bank (ECB) is one of the seven institutions of the EU and the Central Bank for the Eurozone as a whole. It is one of the most critical Central Banks in the world, and it supervises over 120 central banks and commercial banks within the EU states. The ECB, works with the Central banks in each of the EU states, to formulate monetary policy .- The primary function of the European Central Bank is to maintain price stability and safeguard the value of the Euro. The Governing Council defined price stability with rate of inflation either under or close to 2%. Price stability is essential for spurring economic growth and job creation, which are core objectives of the EU.To ensure the robustness of the banking system, the ECB is responsible for banking supervision in all the EU member states holding the power to grant and withdraw banking licenses, conduct supervisory reviews and set higher capital requirements to counter any financial risks. Beyond ther formalities for any Central Bank,the ECB has a key role in keeping the euro value as the currency set for the world stage, as an alternative to other currencies. This is quite a challenge because for doing so, the ECB needs to have among all members states a fiscal policy discipline , otherwise its main goal goes into the risk zone of weakening the euro. The basic format of the Euro, give to the fiscal policy its fair share for supporting economic activity up to a deficit of no more than 3% of GDP. However, as the crisis of 2010 proved, it is hard to keep that level when social needs arise such that fiscal spending goes far beyond that limit.This creates stress among some members of the eurozone. This when the real importance of ECB take place. How to cope with the adjustment process to get fiscal spending down, while keeping at the same time the Euro as a reliable currency?.- This is the reason because Mr Draghi, now in his last four months in charge of the ECB, is considered to be the one who saved the euro in the worst of the moment for the Eurozone following its 2010 own crisis.- He realized that the euro was suitable to get along with more active monetary policy("whatever it is necessary" in his own words), which was not necessarily on the menu at the beggining of thenew currency. In fact, it was something the ECB was not set for. Open market operations(To buy Bonds), or reducing actively interest rates, was an unkonwn territory Mr Draghi went through sucessfully. This is so, because the euro currency play the role of a fixed exchange rate where monetary policy is supposedly constrained by free capital flows. So , there are good expectations that after the learning process is already done, the new authority will follow the same path and this is good for the Euro zone. Another matter is the issue of a more flexible approach, the so called "two speed euro zone", which some key economies of the Euro zone, are asking to be applied.-

European Union: No neutral Elections

The European Union had last sunday (may the 26th), its electionary process which turns out to be out of the usual. Instead it has become the signal that although european voters are in a good mood about the current affairs, they expect a deeper focus on new challenges such climate change, inmigration and decentralization. The surprise cames along the right wing forces whose leaders in France, Italy and Germany made a strong effort to improve both its parlamentary visibility and influence. This particular outcome , indicates that they have a message which ignited voetrs,and on the other hand, it is time to take seriously this voters preference.After all its slogan is "Europe for the europeans" and at the same time deeply oriented toward better jobs for the average workers. It all goes to have a more "Human Europe".- So, it looks like the European Union current leaders; so far mainly focused on the economics recovery and stabilization programs, need to have a broader picture of what the voters both need and expect. Quite on the contrary to Latin America and somehow in the USA, socialism does not seems to be a project capable of building up a reliable future.This comes out as the natural result of getting the whole European Union integration process close to a mature stage, which mean it can process differences and alternatives to contingency policies,without risking its whole foundation. To understand what this mature stage means ,it is important to keep in mind the goals of the European Union which are(1993): Promote peace, its values and the well-being of its citizens Offer freedom, security and justice without internal borders Sustainable development based on balanced economic growth and price stability, a highly competitive market economy with full employment and social progress, and environmental protection Combat social exclusion and discrimination Promote scientific and technological progress Enhance economic, social and territorial cohesion and solidarity among EU countries Respect its rich cultural and linguistic diversity Establish an economic and monetary union whose currency is the euro. Besides, The EU has delivered since 1993, more than a quarter of a century of peace, stability and prosperity, helped to raise living standards and launched a single European currency: the euro, a key currency on global economic and financial affairs. More than 340 million EU citizens in 19 countries, now use it as their currency . Moreover, the abolition of border controls between EU countries, people can travel freely throughout most of the continent. And it has become much easier to live, work and travel abroad in Europe. All EU citizens have the right and freedom to choose in which EU country they want to study, work or retire. The EU's main economic engine is the single market. It enables most goods, services, money and people to move freely. So, the election outcomes does not means a refoundations of the EU, rather it is a call to check key issues of its goals out, making a fine tunning with actual timwes.-

The economic side of corruption

Economic theory has not been shy about corruption. A social bad of our times, it has evolved towward a more comprehensive ways headed to improve its benefit . Like the second best theory, it has become the alternative path to get control of the sate. The first one is of course throughout free elections, but in this case those who are elected, are subject to the scrutiny by their voters. Corruption instead works quietly to get rid of any vestige of control and scrutiny. So; once it becomes the core of the state actions, there is no way to think about a better state.It goes the other way .The State becomes the throphy which signal the decomposition of a society. Those who failed their promise to their voters, are in the position of getting both huge ilegal profit and advantage positions arising from corruption pratices. At the same time, they get the control of the State such that any action to prevent those practices are not possible. Corruption self reinforce indefinitely . Back to economic theory, Rose-Ackerman (1978) wrote an essay "Corruption: A Study in political economy which argues about two types of corruption a.- Political corruption b,. Burocratic corruption However, recent events in many latin american countries and in other places , suggest a thrid type : the one arising from mixing both political and burocratic corruption. It may be called the "deep state corruption", as long as there is not any guard of last resort .The whole state becomes captured by corruption.- This mixed social bad has serious implications: a.- Undermine the free society and its institutions b.- It becomes the new source of power to influence events, not based upon the people best interest, but their own c.- It confuse the role of those institutions like free press of staying between power and society d.- It affect negatively the prospect for investment and economic growth, becasue it becomes like a heavy shadow tax to be impose on any transactions f.- Finally, society lose its moral stand, its sense of what it means to do the right thing ant to guarantee the fair chance for everyone to get their expectations to become real Worse of all the above , is the fact that these days international public opinion is watching as close those consequences are to the ordinary citizens.

The Yield Curve: A note

These day (in fact last friday),there was some concern about the pattern of the short term yield curve,which contrary to the expected,was above that one which reflect the long term yield.This means short term returns of Financial instruments (Bonds) were higher in the short run, than in the long run.This is the usual case signalling a recession. - What is the meaning of Yield curve ? It means the expected return, for a financial investment taking into account different periods of time and its return profile.Usually in the long run returns are higher than in the short run, because investors who ties up their money for some time to less liquid financial assets,(Bonds), look for a compensation arising from uncertainty and future inflation rates.Thus,the usual yield curve, signal a positive expectations about future economic growth.This is so, because in such a case, Central Banks should apply a restrictive monetary policy to moderate inflation increasing interest rate .So, the future financial returns, includes a risk premium.- The underlying assumption about this normal pattern are two: a.- Economic agent are capable of gathering all economic information about economic growth and Central Bank actions in such efficient way, that they can anticipate what is going to be the future economic growth trend and Central Bank policy reaction. b.- Long run Economic growth trend is boosted by inovation but constrained by inflation, which is the key variable to increase uncertainty .- However, before getting into the core of the argument ,there are other types of yield curve, aside from the normal one mentioned above.These additional kind of yield curves, signal a different views about the economy. Let review them briefly 1.-Flat yield curve. The expectation is that both, the economy is slowing down and inflation is close to its lower long run trend, as much as lower economic growth rate, mean cooling off inflationary pressures.- 2.- The upward sloping yield curve.Expectations about future interest rate, are to increase it at a faster pace than usual, which could be the case whwn there is a strong rebound, coming out from a deep dowturn(recession). Finally,it is the one which market worry about .The inverted yield curve , means that short term returns are higher than the long run ones. Following the standard approach,this means economic agent are placing lower return for long run financial investment, because given their ability to understand properly economic information, they believe the economy will get into recession some time into the near future , such that interest rate will have to be lower to get back economic growth. But is it really that the case? There are some credible argument to doubt about the strenght of that approach: a.- Economic agent are not 100% efficient about their expectations. They may fail about it , but it is not their fault: The economy is on its way to normalize the fundamental of the macroeconomic relationship between key variables (inflation, interest rate ,economic growth , and unemployment),following years of quantitative easing monetary policy, which led to the so called "sub normal" stage of the economy with key prices out of the expected .How come that usual model can explain the unusual? b.- It follows, that the traditional models somehow are measuring inflation with some upward biased, in contrast to the current trend of low inflation or at least weaks inflationary pressures.So markets may expect low inflation to be the "new" normal,for some of the following reasons b1.-It is the case which better apply for global markets (global scale suppliers). b2.- There will be less uncertainty given new and more efficient rules for global trade. b3.- The pace of economic growth will be slower because on the one side, it is the limitations of the fiscal policy expansion(Low fiscal multiplier), but at the same time, there is the expectation of relevant compensatory forces coming out from the supply side deregulation.- c.- The outcome is that the inverted yield curve, does not necessarily anticipate an economic recession, as long as inflation does not seems to be the constraint for the global economy.It rather fit more properly with a positive trend for economic growth, although at a slower pace than desirable. How come ? If inflation is not longer a restriction, it redcuces uncertainty ,and interest rate may stay at a lower level for longer periods of time.-

2019:Latinamerica and their say

It is almost 30 year ago that Latin american economies started out (1990),a complex development process,following the external debt crisis of the eighties.It was complex because there was a turbulent past of dictatorships,corruption, poverty and state intervention, which turned out to be almost a dream to think about markets, private investment,economic growth and wealth.But the journey started over and the outcomes becomes a reality throughout the following years . Lower poverty rate, lower inflation rate,higher integration with world markets, higher economic growth rate, private business as the source of wealth, all of which led to lower unemployment rate as well.From the economic stand point , the foundation of prosperity are in place. However, there are some challenges: a.- To make full control of corruption.This social bad comes out both from public and private sources. However, it has been that one coming from the collusion of government and private firms ,which has become more tan a problem In fact , it was a moral failure for those who are in public office to take the voice of those unable to do it on their own. b.- To make clear that the progress already in place, came out from democracy and its vaues: respect for Human rights, free press,independent judiciary system,autonomus central Banks ; and a state ready to adpat itself to the new challenges. Actually, People is fully aware about their right to be citizens, to make entrepreneurships activities to improve their well being, or to get the best of their talents throughout education. In a nitschell, to be in charge of their own destiny and their freedom. c.- To make clear that there has been a shifting from the state to market as the source of wealth and prosperity. People do not want to live up to their fear anymore. So, even though there are still some problems to solve , a revolution has taken place , whithin the rules of democracy and allowing Latin america economies to move forward to higher stage of development, leaving aside the vulnerabilities of poverty to get better standard of living as much as it keeps steadily the path chosen so far. 2019, is an opportunity to make a step further.It will be a political year , with many free elections.As long as the global economy solve its new arquitecture, and global economics growth keep the pace although at a moderate pace, democracy in latin america will open up more doors to prosperity. Thus ,Latin America is moving toward being a new global partner reliable because its values, stable because of both its economics and social policies, and strong because of its democratic governments. This the right side of History.

Venezuela at its hour 25th

Most of western democracy works on the basis of few key principles, most of which deal with voters and its right to be citizen. This mean to have the chance of chosing alternative path to those which for whatever reason does not fill their expectation.Usually these expectation are related to their current economic well being and beyond their most pressing need. The traditional standard to evaluate any democratic Government is its economic performance concerning inflation , employment and economic growth all of which allow higher welfare levels.So whether it is increasing , voter may give the Government their approval throughout voting process.Otherwise , the may send their oposition with policies designed in the wrong direction, throughout the same process , which means voting against it.So economic performance and democracy are closely related as much as one reinforce the other. What happen when that is not the case?.There are two explanations: a.- It is not a democracy b.- It does not matter the well being of those who voted It is the time to think about the implication of that scenario. The morality of power deal with voters.Anything on the contrary, is a flat denial of those rights considered to be Human rights.So inmorality becomes an unaceptable path.

The EuroZone and the monetary normalization

Markets watchers are guessing about what comes next with the European Central Bank, given the path of monetary normalization in place by the Federal Reserve since 2015 , which creates an expected interest rate diferential between Europe and the USA markets in the range of 2,5-3% for 2019 .Traditional models (Mundelll Fleming approach), suggest that with flexible exchange rates, such diferential should adjust itself by free capital flows, such that an equlibrium global interest rate would prevail. While it is in progress, such adjutment weaken one currency (euro) and strength the other (dollar).This is good for EU export, however not that much good for domestic consumers,saving, and investment which seek better and higher returns abroad. So, sooner or later,it will be necessary to make corrections to close the gap.This means the European Central Bank applying its own normalization program. The key question is what the conditions in the EU are for such correction ?.Probably there are some doubts based on the fact that the EU economic growth (1,5-1,8%) ,does not seem to be so much strong as it has been the case for the USA (3-4%). Besides, the debt level (Italy) and unemployment( both France and Spain) of key partners are tecnically a threat for the success of such normalization meaning low market volatility and keeping the pace of current economic growth. Besides , for the European Central Bank it is an unknown territory which will requires very precise skils to get the fine tunning of the adjustment path, leaving aside the role of complementary policies for those economies in weaker shape. It will for sure an interesting case to follow.-