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How fiscal irresponsibility has shattered the economy of Argentina and other countries

Brazil doesn’t have to look far to learn how fiscal irresponsibility can tear a country’s economy apart. Inflation in Argentina is close to 100% and Peronism, with its lack of interest in reducing the fiscal deficit, is one of the main factors that led to this chaotic scenario.

“What really destroyed Argentina was Peronism, a political organizational system where there is a very large force of union movements”, highlighted economist and doctor in international relations Igor Lucena. “The country’s political union organization considers corporatism as the superior good: the fiscal costs don’t matter”, he described.

Absorbing government expenses that cannot be disassociated is part of this political-economic organization of the a country that, according to the expert, is very difficult to combat without a radical economic plan, such as the Real Plan in Brazil.

“Peronism transformed Argentina, which was one of the most rich in Latin America, in one of the poorest”, stressed Lucena.

Within this system, the country today led by the Peronist Alberto Fernández prints money uncontrollably, spends more than it collects and even borrows in dollar – you therefore need to return it in dollars. This becomes almost a vicious circle, in which currency devaluations make debts unpayable.

Crossing the Ocean, another recent event involved former Prime Minister Liz Truss, the fifth in the UK since 2016. ras, in which she stayed for only 45 days, was also related to tax issues.

Truss’s initial proposal was to create a large tax cut, which would benefit even the richest, within a mini-budget, with a lean State, very different from Argentina. However, to cover the hole in the government’s accounts, the idea was to borrow billions. The fear of an increase in public debt worried investors and made the pound fall to the lowest value in history against the dollar.

After investors showed pessimism in relation to Truss’s economic plans, the government British announced changes, but they were not enough to keep the newly arrived prime minister in power. She resigned and the rapid movement in the leadership of the United Kingdom may have avoided greater economic tragedies.

Greece, for example, despite eagerly recovering part of its international economic credibility, is still experiencing the consequences of fiscal irresponsibility of more than ten years ago. According to a recent survey by the Marc Institute, the biggest concern of the Greek population is the rising cost of living (for 84,5% of Greeks). This problem is way ahead of tensions with Turkey (44%), for example.

Faced with galloping inflation, which reached ,1% – one of the highest in the European Union, according to Eurostat -, it was especially in the field of energy that the increases were the most spectacular results: gas prices quadrupled in one year (+ 100%) and electricity prices rose 30%. As winter approaches, many Greeks fear that they will not be able to warm up adequately.

When the economic crisis hit in 2010, rates rose and the country could no longer finance itself on international markets. In 2010, after the radical left government of Alexis Tsipras came to power and the confrontation with Brussels to reduce the austerity measures, rates reached close to 11%.

It took some time for Athens to regain confidence. The political change in July 2019 also had a positive impact on investors, who found the conservative government of Kyriakos Mitsotakis less unpredictable, promoting the reduction of taxes on property, companies and social contributions. But there is still a long way to go to account for the losses of so many years.

In view of these examples, monetary policy in Brazil is efficient and even had three months of deflation this year. For Lucena, the country’s biggest risk today is fiscal immaturity. “We cannot spend more than we earn”, she warned. The economist pointed out that what holds Brazil back is exchange rate and monetary maturity, but there is a risk of following paths like those of the countries mentioned in the report if there is total lack of control of fiscal spending.

“That is why it is so important that this transition PEC that is being announced has a limit close to R$ 70 or 70 billion and serve only for this year. And that, next year, we will have a change in the spending ceiling for long-term debt control”, summarized Lucena.

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