Tuesday, January 20, 2009

Analysts Want Increase in Public Spending to Confront Crisis

Analysts say that the economic crisis will worsen in 2009 and Guatemala will be afflicted by less employment, consumption, and investment. In light of this, they recommend an increase in public spending but through methods that maintain transparency. Investments in infrastructure, social assistance, and funds aimed at increasing employment should be the areas of focus. The analysts recommend that due to the nature of the crisis these expenditures should be made in spite of the fact that it will increase debt.

One expert's opinion is that this is the ideal time to undertake large projects such as hydroelectric and highways because inflation should not be a problem. In fact, inflation is expected to shrink later this year so it's a good time for government spending. He recommends running a deficit of 2.5 percent for two years. This takes into consideration that tax revenues decreased in 2008 as GNP dropped by 11 percent and that there is a need to increase liquidity in the money supply. The government needs to spend right but in a transparent manner and in a way that prevents the funds from being diverted into the wrong hands. Now is a bad time to increase taxes because it will further slow an already slowed economy. This is the big mistake made in the United States in the 1930s where politicians concerned about a balanced budget increased taxes and crashed the economy.

Last year, Banco de Guatemala intervened 31 times to control the Quetzal / Dollar exchange rate. This year, the bank plans to allow the exchange rate to move more freely and the experts say this is good. The economies of First World countries are in serious crisis but that crisis does not have to affect Guatemala so much. Guatemala has assets and capabilities such that the future need not look as bleak as it does for the First World countries.

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