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Uruguay’s fiscal and salaries policies out of control plus heterodox ‘solutions’ rumours

Wednesday, December 12th 2012 - 19:34 UTC
Full article 5 comments
Economist Talvi claims unions have taken control of Uruguay’s budget management and resources are squandered   Economist Talvi claims unions have taken control of Uruguay’s budget management and resources are squandered

Uruguay has “politicized the management of its economy” with the government letting the “trade unions and its political allies” master the country’s budget and the salaries policy, claimed Ernesto Talvi a conservative economist from the local think-tank CERES who is also a World Bank consultant.

During a conference to the business community under the heading of “Uruguay, the region and the world in a crossroad”, Talvi warned that Uruguay runs the risk of being tempted to apply fiscal and inflationary ‘heterodox’ policies as in Argentina. He underlined that ‘heterodoxy’ in economics is the elegant name for ‘nonsense’, when not ‘stupidity’.

Uruguay is “dancing to the tune of global music” just like Brazil and Argentina, with the difference that Argentina has made (is making) “colossal mistakes” under the umbrella of heterodoxy and “we are hearing a lot of similar initiatives in this country”.

Uruguay has “a complicated competitiveness” situation, has lost anchor with Argentina and Brazil and “I fear we are increasingly out of line with the region” probably because of the exhaustion of monetary policy and the salaries policy under control of the unions.

Talvi also expressed his concern about the government’s budget which has soared in just twelve months from a fiscal deficit of 0.4% of GDP to over 3% of GDP, climbing and “with no symptoms of recovery”

Inflation was another issue emphasized by Talvi: we are closing on the two digits, there is a serious fiscal deterioration and an inflation that is running out of control”. He added that since World War II (1939/1945) government revenue in real terms since 2005 has never increased so strongly, 45%, but regrettably, “we have spent it all, with much squandered”.

Beginning September 2011 government expenditure is out of control, “totally divorced from revenue”, and “we started squandering, to ill spend and the deficit has ballooned at a moment when we are having difficulties with inflation”, underlined the economist.

“The government is not the owner of the resources, we are, those who pay taxes, those who generate production and jobs. The government in our name uses those fund for collective efforts that should benefit the whole society and not small pressure groups that through different ways have taken control of the budget”, claimed Talvi.

The think-tank head then attacked the current wages’ policy arguing that until September 2011, increases were in the context of the possibilities of the economy, “but from there on they are out of course, running wild”.

“Government expenditure is totally out of control and salaries for the first time are divorced from economic fundamentals, and the tendency is for things to worsen”, said Talvi who warned that given the increasing inflationary pressures the government is on the wrong fiscal track with a strong expansion policy, exactly the opposite to what is recommended in these circumstances, plus an incomes policy out of touch with reality.

“Short and straight, the fiscal and salaries policies have lost their compass”.

In this scenario and with the Argentine example next door, and certain ideological affinity, this could lead the Uruguayan government to rely on ‘heterodox measures’ such as “prices control, manipulating public utilities rates, undercover subsidies which end up conspiring against the credibility of the country, particularly with such bad examples around us”.

Talvi concluded saying that Uruguay is living with a politicized economy’s management in which it looks as if the government has handed to the trade unions and their political allies the management of the national budget and the salaries policy, dropping its constitutional responsibility of ruling in the name of all citizens.

However there was a final bright spot and a positive message: the global economy seems to be in threshold of another expansive cycle, said Talvi. “The ball is back in our court”.

Likewise in the region Brazil’s performance for 2013 is most encouraging although the same can’t be said of Argentina, which is not about to collapse financially but neither on a spring board for recovery.

Globally Talvi was optimistic about the recovery of the US economy, a more stable growth in China and with a dim light at the end of the tunnel for the European Union. However he did not discard a complicated political social scenario in the EU with potential social upheavals in Greece, Spain, and in other countries with the proliferation of violent extremist groups.

But until the EU does not find a way out of its crisis, global financial stability is at risk.
 

Categories: Economy, Latin America, Uruguay.

Top Comments

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  • ChrisR

    If this guy is correct (and is there any reason to doubt it?) it is all beginning to make sense to me now.

    I was always firm in the belief that none of the so called 'leaders' had any understanding at all of running a large business which any country with only 3M people could be considered to model.

    Put the monkeys be in charge of the zoo jumps to mind.

    As an atheist God help us.

    Peace and blessings to the monkeys.

    Dec 12th, 2012 - 08:03 pm 0
  • redpoll

    I would agree with most of it but dont think the picture is as black as he paints it

    Dec 12th, 2012 - 11:26 pm 0
  • ProRG_American

    See, I told you so.

    http://www.buenosairesherald.com/article/119310/cfk-argentina-close-to-reaching-automobile-trade-agreement-with-mexico

    Dec 13th, 2012 - 11:56 pm 0
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