When something is easy to do, it is not appreciated, nothing is learned and you are condemned to repeat all the bad things that have arisen from it… Macraf
In my collaboration last month -Inflation and consumption: the never-ending story- I mentioned that one of the main problems that currently exists is the relationship between the control of high inflationary levels and the levels of consumption within an economy, Due to the fact that one of the main tools used to control the general rise in prices is the increase in interest rates, a decision that makes credit more expensive, being one of the main affected, the one aimed at consumption, however, Over the last few weeks, a new variable has been added to this complicated relationship, the stability of the international financial system and, this last, derived from the problems that have been experienced in recent weeks in the United States and Europe, which has led the International Monetary Fund (IMF) in its monthly economic outlook publication to consider that even as inflation is trending downward, economic growth has clearly slowed.
According to the information published by the international organization, it is expected that it will not be until the end of 2024 when inflation returns to levels close to 5.0%, still above the goals of central banks at the international level, but, what is more, the attention, the growth levels projected for the following months, in the case of advanced economies, are practically in a range between 1.3% and 1.8%, while in the case of emerging and developing economies, the range is between 2.8% and 4.5%, which according to the IMF, is the product of the recent banking instability at the international level, which made it clear that the financial system could not absorb the losses generated by the market without support government, that is, without the use of public money, which reflects the great vulnerability of financial intermediaries and has caused many institutions to decide to face the growing financing costs by acting more prudently, by cutting concessions. of credit, a situation that together with the increase in interest rates, deepens the economic slowdown.
The foregoing has generated, in addition to great uncertainty, an episode of risk aversion, the impact of which is very clear in emerging market and developing economies with the outflow of large amounts of capital, an increase in risk premiums and, therefore, a drop in investor confidence. This scenario reveals the need for close coordination between the central bank’s monetary policy decisions and the country’s government’s fiscal policy decisions, in the case of the former, adapting its decisions to financial developments without losing sight of its The main objective is to control inflation and preserve the purchasing power of the currency, while in the case of the second, it should seek to cool down economic activity, through a restrictive scenario that complements the increase in interest rates. , using tools such as government spending or tax rates, remembering that increases in interest rates make public debt more expensive, so reducing spending levels could offset the increase in the cost of financing and, therefore, , improves the situation of public finances.
The scenario we are facing is not easy to understand, although the last few months have not been the best in economic terms due to the consequences of the pandemic, the war between Russia and Ukraine, the geopolitical tensions between China and the United States and, more recently, the imbalance in the international financial system, the main efforts that every country must make must be directed towards economic growth, since it is the first step to reach economic development, whose main definition is to improve the quality of life of the people of a country, therefore, all the actions and decisions that are taken must be aimed at this purpose and be careful, nobody has said that it is easy.
* The author is an academic at the School of Government and Economics of the Universidad Panamericana, speaker, expert consultant on economic, financial and government issues, founding director of the site El Comentario del Día and host of the program Voces Universitarias.
