Inflation and production diversification must be the top priorities of emerging economies such as Argentina warned Nobel Prize Joseph Stiglitz during an IMF sponsored forum on “Macro and growth policies at the wake of the crisis” which took place in Washington and convened top line economists and decision makers.
“Argentina taxed windfall earnings from commodities and granted incentives to other industries to diversify, which is positive, but the problem is that the commodities boom can’t sustain by itself growth and much less employment”, said Stiglitz,
Argentina reinforced incentives to support other industries, “which helped partially to overcome the situation of the nineties”, he added.
Regarding the current global inflation challenge, the Nobel Prize argued that there are different ideas about the phenomenon: “some believe the increase in commodities prices is temporary or that the influx of capitals is reverting, therefore they are not in a rush to contain the inflow, fearful of committing the same mistake as Japan did that has since undergone a long period of stagflation”.
However this does not mean nothing has to be done: “in China interest rates went up, not much, but up, even when salaries are also increasing. In Turkey for example instead of raising rates, they were lowered but controls on incoming capital have become far stricter. Tools are debatable but the issue must be addressed”, said Stiglitz.
A more lively debate emerged when the controversial issue of controls on capital inflows was analyzed by a panel that included Arminio Fraga from Brazil; Ricardo Caballero, Chile; Rakesh Mohan, India and Jose Antonio Ocampo, Colombia, with Stiglitz and other economists as listeners.
Fraga was against controls, although Stiglitz recalled that when he was president of the Brazilian central bank, “he appealed to controls all the time”. Stiglitz argued that controls are useful, but Fraga said that “many times good ideas are poorly implemented”.
Ocampo said that the Chilean and Colombian models (with limited controls) are useful instruments which act as “counter cycle to dampen the impact of external shocks”. But Caballero insisted that it did not make sense “to impose controls on something which is not a problem, as is the case of the inflow of capital” to emerging economies.
Finally Nobel Prize Michael Spence said that while China, India and Brazil present very good prospects, United States “will at some point recover economic growth, but with greater difficulties the level of employment, which will turn the country into an even more unequal society”.