Monday, June 6, 2016

Argeo Quiñones and Ian Seda on the crisis in Puerto Rico

Argeo Quiñones-Pérez and Ian Seda-Irizarry discuss the crisis in this piece. They correctly point out the neocolonialist solution being imposed by the US administration. I find the imposition of a Fiscal Control Board (FCB) particularly problematic. Back when Argentina defaulted in 2002, Rudi Dornbusch had suggested something similar. At that time I sent the letter below to the Financial Times that had published his proposal.
Mystery of about-turn on Argentina 
Financial Times, Mar 12, 2002
From Matias Vernengo. 
Sir, Back in February 1997, Professor Rudiger Dornbusch said: "Argentina is on the go - (it) is the only country in the world today that enjoys both price stability and vigorous growth." The reasons were associated, according to Prof Dornbusch, with hard money and pro-market reforms. Argentina's policies then were an example to Brazil, Mexico and other developing countries. Now, Prof Dornbusch together with Prof Ricardo Caballero tells us that this exemplary economy was not so ("Argentina cannot be trusted", March 8). Prof Dornbusch should clarify what transformed this successful liberalisation experience into a catastrophe, or explain why he changed his mind. Also, it must be noted that suggesting a foreign board of central bankers to control monetary policy, and another foreign board to verify fiscal performance, is tantamount to suggesting colonisation of Argentina by foreign agents. The question then is whether Argentina should be returned to Spain. Or does Prof Dornbusch have another suggestion? 
Matias Vernengo,
Assistant Professor,
Kalamazoo College,
Kalamazoo, MI 49006, US
Note that the problems, both of Puerto Rico and Argentina, are related to debt in foreign currency, and, hence, to balance of payments issues, rather than fiscal per se. In addition, note that Argentina was quasi-dollarized by Convertibility, while Puerto Rico is effectively dollarized. Btw, the new government in Argentina wants to be re-colonized by Spain (the finance minister apologized to Spanish investors recently; see here).

The hope of some on the left, in Puerto Rico, was that, with a Bernie victory in the primaries there, the movement for decolonization could gain some force. Alas, Hillary won the primary.

A more detailed discussion of the crisis by the same authors is available here in their paper "Wealth Extraction, Governmental Servitude, and Social Disintegration in Colonial Puerto Rico."

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