Brazil is doing exactly the right thing; deregulate, divest govm't owned companies, don't raise taxes, and if need be raise interest rates to defend your currency. They absolutely should NOT DEVALUE THEIR CURENCY despite what the busy body IMF advisors are badgering them to do. If they can stay this course capital will flood their economy which would be great for TBR.
But I think it will take more than 6 months before the world's investors' confidence returns totally. For that reason, I wonder if it might be wise to delay the sale half a year.
As it so happens, Steve Forbes echoes my sentiments exactly in today's WSJ ( all right, I admit it's actually vice versa ):
Steve Forbes is chairman of Americans for Hope, Growth and Opportunity:
The Clinton-Gore administration and the IMF are prescribing remedies based on a bogus theory that substantial devaluations are good for getting a country back on its feet. But devaluations are disaster. They trigger enormous domestic inflation, sharply reduce people's standard of living, hobble domestic capital creation, scare away foreign investment. The ultimate result, if unchecked, is economic anarchy.
Encouraged by Mr. Clinton and the IMF, Mexico went the devaluation route in 1994, and interest rates soared to 100%. Unemployment rose rapidly. Workers' salaries were effectively cut some 50%. The majority of Mexicans are worse off today, which is why the governing party routinely loses honest elections. By bailing out investors and speculators, Mr. Clinton unwittingly encouraged speculative money flows elsewhere.
The U.S. should:
help Asian nations stabilize their distressed currencies by repegging them to the U.S. dollar at higher rates than they are now, perhaps through a Hong Kong-style currency board;
pressure the Bank of Japan to cease its on-and-off eight-year deflation;
urge these nations to set up independent entities to take over bad banking loans, just as we did with our savings-and-loans;
urge nations to lower trade barriers, simplify taxes, reduce tax rates and remove excessive regulations on starting and expanding businesses; and
tell IMF officials to take a hike. |
