Download e-book for kindle: Inflation and Stabilisation in Latin America by Rosemary Thorp, Lawrence Whitehead

By Rosemary Thorp, Lawrence Whitehead

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Inflation and Stabilisation in Latin America investment a decade earlier. Meanwhile the industrialisation process was suffering the stagnation endemic to the later stages of import-substitution and mineral production was flagging seriously. In all three sectors of 'means of production' (agriculture, minerals and heavy industry) it appeared that massive capitalisation was clearly overdue; as the private sector was unwilling to undertake, or incapable of undertaking, this (preferring the high profits of light manufacturing, real estate and tourism) an expansion of state investment became inevitable.

5 This had a double effect upon policymaking by the government: first, it removed the objection to increased government spending, even under monetarist criteria; second, and more significantly, it reduced the credibility within the administration of the monetary authorities and their demands for budgetary restraint. 6 while the tax reform would maintain equilibrium on the demand side. This latter' 7 would have kept the fiscal deficit in check, while the rising rate of real national income would have generated the necessary private savings surplus to finance this deficit.

Third, the claim that the system allowed public and private investment to be automatically balanced rests on the supposition that there was a shortage of investible funds in the system. As a hypothesis, this has been deduced from the evident excess of profitability over interest rates, but there are good reasons for doubting it in practice - particularly in the 1960s. ·' In the 1960s, new funds coming annually on to the capital market were equivalent to a steady 4-5 per cent of GDP, of which about a half was absorbed by public sector borrowing; however, these funds represented only one-quarter of private saving and of that the part 'on-lent' to the private sector only represented one-fifth of private investment, which was mostly financed out of retained profits or funds transferred directly between firms.

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