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'Global View: Money makes the world spin
By IAN CAMPBELLUPI Chief Economics Correspondent
QUERETARO, Mexico April 20 (UPI)

Money is good, isn't it? The more, the better. Money makes the world go round. But sometimes it makes it spin giddily.
Why is the U.S. economy in difficulty? Why did the Argentine one collapse two years ago? It all has to do with tides of money.
Take Argentina first. The tide of money swept into the country in the early 1990s and, after a brief pause, mid-1990s when things looked promising. An apparently business-oriented president, Carlos Menem, was in power. The plan was to reverse decades of decline. The hyperinflation of the late 1980s was being conquered. Public utilities were being privatized. Nothing better than the bait of privatization to tempt the capitalist fishermen. They cast their credit lines in. Argentina was hooked. But so, it turned out, were they. Some paid when Argentina defaulted.
Pure foolishness? Should the investors have known better than to commit large sums to purchasing Argentine debt? Perhaps they should. But it is all more complex than that. The question we are examining is whether the credit lines did harm, made matters worse, made it more likely that Argentina would sink into crisis.
An anecdote. A decade ago this writer had a meeting with the then Argentine foreign minister, Guido di Tella. Di Tella was an economist and was well informed about economic policy. The exchange rate had been fixed one to one with the U.S. dollar in April 1991. I said to Di Tella that I thought this would make Argentina uncompetitive and was dangerous. It would be better to float the currency.
"But where do you think the exchange rate would be now, if it was floating?" Di Tella asked.
"Yes, OK, it might be stronger," I replied.
The problem was the tide. Argentina was in fashion. The recovery story was whipped into a frenzy. As usual, truth and balance were out of fashion. Money flowed in and affected the economy in a number of ways. Dollars were abundant. Money growth was high. Spending on imports was booming. The peso, were it not fixed against the dollar, would have risen in value, not fallen, making Argentina still more uncompetitive and Argentina's deficit on current account -- the broadest measure of trade -- still higher. But, about eight years on, the tide had turned and the peso eventually sank, losing almost three-quarters of its value.'

Lees verder:
http://www.upi.com/NewsTrack/Business/2003/04/20/
global_view_money_makes_the_world_spin/