NewsWhore
11-30-2009, 03:10 PM
In today's Hoy newspaper, former Central Bank operations manager Apolinar Veloz makes the point that the amount a country can borrow is determined by its capacity to pay, not by comparisons with the debt situation in other countries. He shares the concerns expressed by business groups and civil society about the spectacular increase in government borrowing, and concerns of the way government is using the borrowed money.
He warns that after the signing of the Stand-by Arrangement with the International Monetary Fund (IMF), the country could take on US$5.4 billion in debt over the next 28 months. He says that according to the Central Bank the public debt stock is US$11.435 billion, which would mean if all the credit that is now available were taken on, this would increase by 47.2%. He warns that the public debt is growing faster than the Gross Domestic Product. He points out that if the Central Bank's quasi-fiscal debt were added (US$547.4 million in 2009) then the public debt would be US$11.982 billion, or 5% more.
Veloz says that while to service the debt in 1996 the government had to use 8 cents of every peso, by 2008 it was using 34 cents of each peso, without taking the new loans and the arrears into account.
He drives home the important point: "If one considers the fixed expenditures of the central government that come from laws that specialize a certain proportion of the tax revenue, current expenditures due to the growth of the government payroll, political propaganda and political patronage (disguised as welfare), one can easily conclude that government constructions are financed with what is left over after covering their own political needs. To take on more loans to grow does not make sense when a significant proportion of the tax revenues are already being paid to international and domestic lenders".
Veloz says that government savings are negative, especially in recent years, when taxes lag behind expenditures. He makes the point that the government had cash flow quarterly deficits at the time of closing the agreement with the IMF, which has led the government to finance itself with arrears in its payment of debt. The Ministry of Hacienda estimates a deficit of around US$1.246 billion for the year-end and US$1.324 billion for 2010. In other words, the tax revenues are not enough to cover government spending, neither for 2009 nor during 2010.
He says it is clear that taxpayers will have to pay to service the public debt. He says that Latin American countries that followed this path became poorer, there was an increase in unemployment, inflation increased, and there were successive deficits in the current account and a major flight of capital.
"The current administration is spending today what it does not have (increasing public debt) and tomorrow it will need more money (from taxpayers) to pay the public debt, which will reduce money in circulation, consumption and aggregate demand will drop, with a decline in future economic growth. This will then lead to an increase in taxes," he writes.
He concludes that if this administration cannot show progress in reducing poverty during its boom years (2005-2008), one cannot expect it will do so during the current economic crisis. But he then warns that government officials reason that within the euphoria of short-term growth that borrowing generates... in the long term we will all be dead."
More... (http://www.dr1.com/index.html#6)
He warns that after the signing of the Stand-by Arrangement with the International Monetary Fund (IMF), the country could take on US$5.4 billion in debt over the next 28 months. He says that according to the Central Bank the public debt stock is US$11.435 billion, which would mean if all the credit that is now available were taken on, this would increase by 47.2%. He warns that the public debt is growing faster than the Gross Domestic Product. He points out that if the Central Bank's quasi-fiscal debt were added (US$547.4 million in 2009) then the public debt would be US$11.982 billion, or 5% more.
Veloz says that while to service the debt in 1996 the government had to use 8 cents of every peso, by 2008 it was using 34 cents of each peso, without taking the new loans and the arrears into account.
He drives home the important point: "If one considers the fixed expenditures of the central government that come from laws that specialize a certain proportion of the tax revenue, current expenditures due to the growth of the government payroll, political propaganda and political patronage (disguised as welfare), one can easily conclude that government constructions are financed with what is left over after covering their own political needs. To take on more loans to grow does not make sense when a significant proportion of the tax revenues are already being paid to international and domestic lenders".
Veloz says that government savings are negative, especially in recent years, when taxes lag behind expenditures. He makes the point that the government had cash flow quarterly deficits at the time of closing the agreement with the IMF, which has led the government to finance itself with arrears in its payment of debt. The Ministry of Hacienda estimates a deficit of around US$1.246 billion for the year-end and US$1.324 billion for 2010. In other words, the tax revenues are not enough to cover government spending, neither for 2009 nor during 2010.
He says it is clear that taxpayers will have to pay to service the public debt. He says that Latin American countries that followed this path became poorer, there was an increase in unemployment, inflation increased, and there were successive deficits in the current account and a major flight of capital.
"The current administration is spending today what it does not have (increasing public debt) and tomorrow it will need more money (from taxpayers) to pay the public debt, which will reduce money in circulation, consumption and aggregate demand will drop, with a decline in future economic growth. This will then lead to an increase in taxes," he writes.
He concludes that if this administration cannot show progress in reducing poverty during its boom years (2005-2008), one cannot expect it will do so during the current economic crisis. But he then warns that government officials reason that within the euphoria of short-term growth that borrowing generates... in the long term we will all be dead."
More... (http://www.dr1.com/index.html#6)