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Here is a similar piece from Frances Coppola https://www.google.com/amp/s/www.forbes.com/sites/francescoppola/2018/10/31/argentina-and-the-lure-of-dollars/amp/
It’s all much simpler than Ramanan suggests: everything is explained by political skullduggery.
Governments borrow for a reason explained by David Hume 300 years ago: it enables incumbent politicians to ingratiate themselves with voters while successor politicians are left to sort out the resulting “debt mess”. (Voters are keenly aware of tax increases, but tend not to attribute interest rate rises to politicians, ergo it pays politicians to fund public spending via debt rather than taxes.)
As for borrowing in a foreign currency, that amplifies the latter skullduggery. That is, borrowing in your own currency may boost demand, but that has the unfortunate effect of depressing your currency on forex markets, which depresses the living standards of your population, all else equal. But if you borrow in a FOREIGN currency, then hey presto, there is no immediate forex related cut in living standards.
Of course the “debt mess” left to successor politicians is even bigger, but why bother about that?.....:-)
Here is a similar piece from Frances Coppola https://www.google.com/amp/s/www.forbes.com/sites/francescoppola/2018/10/31/argentina-and-the-lure-of-dollars/amp/
ReplyDeleteIt’s all much simpler than Ramanan suggests: everything is explained by political skullduggery.
ReplyDeleteGovernments borrow for a reason explained by David Hume 300 years ago: it enables incumbent politicians to ingratiate themselves with voters while successor politicians are left to sort out the resulting “debt mess”. (Voters are keenly aware of tax increases, but tend not to attribute interest rate rises to politicians, ergo it pays politicians to fund public spending via debt rather than taxes.)
As for borrowing in a foreign currency, that amplifies the latter skullduggery. That is, borrowing in your own currency may boost demand, but that has the unfortunate effect of depressing your currency on forex markets, which depresses the living standards of your population, all else equal. But if you borrow in a FOREIGN currency, then hey presto, there is no immediate forex related cut in living standards.
Of course the “debt mess” left to successor politicians is even bigger, but why bother about that?.....:-)