sexta-feira, março 02, 2012

Troika maintains Taboo over Trade

A quick comparison with Iceland raises the question of which is the less orthodox balance of payment adjustment programs for the highly indebted countries.

Contrary to what the IMF Survey says, Iceland followed the traditional orthodox  récipe for cutting the external deficit: 
- Sharp devaluation of over 50%  in 2008
- higher local interest rates,
- capital controls
This lead to rising exports, cutting imports and a rapid and highly visible improvement in the CAB   Current Account Balance.

In the alternative universe of the Single Market and the Single Currency that is the Eurozone, all of these critical measures are taboo, so the Troika-sponsored program focuses on just about anything else, no matter how ancillary.
One exemple of this side-show is the so-called “liberalization of the electricity sector” to overcome regulatory failures and to give Portuguese consumers a choice of which company will supply them with imported electricty in the future, EDP, Endesa or Galp. If there are monopoly rents in the the regulated monopoly industries, it would make more sense to improve regulation and do away with capture of the Regulator, or with capture of the Concedent in the the case of the PPPs.

Meanwhile, the third Troika review tests nearly everything but what matters, like an exam at a third-rate University which overlooks the core curriculum.  The Troika gives Portugal much deserved kudos for the “large fiscal correction in 2011”, including the creative national accounting achieved with the transfer of the bank pension funds, and the tripartite labor agreement that will slash 20-30% from the incomes of most households in 2012.  

But the Troika barely mentions that the “external adjustment is proceeding”, even the face of ever “stronger headwinds”, Troika-speak for weak external demand as the Eurozone surplus countries impose their own austerity, instead of stimulating their domestic demand as some economists, including Paul Krugman, recommend. 

While the Troika review monopolized the headlines, the really important story was  the external sector.

And there the good news was the 15.2% increase  in Portugal’s exports, achieved without the help of a devaluation and of even of pre-export credit.  But Portugal’s imports still rose 1%, despite  the reduction of -1.5% in GDP in 2011.  This reflected the 3.4% increase in energy imports to €10.288 million,  but also an increase of 1.4% in agri-food imports to €8.697 million.

Here are some important questions to study prior to the next Troika exame :
- Will the liberalization of the energy market lead to the needed reduction in the energy imports and in the energy trade deficit?
- Does Portugal need to opt out of the CAP Common Agricultural policy in order to cease being one of the countries most dependent on food imports?
- Why is the external sector adjustment not addressed explicitly in the adjustment program?

And the biggest question of all: How big a recession will be necessary, in terms of cumulative drop in GDP, to secure the necessary cut in imports, given the  truly "unorthodox" mispricing of imports and the inability to impose direct import restrictions?

Mariana Abrantes de Sousa 
PPP Lusofonia

Portugal trade - € millions

X-Exportações (fob)
M-Importações (cif )
  Net Trade - Saldo (fob-cif )
-      20.291  
-      15.249  
  X/M Cobertura (fob/cif )

6 comentários:

PPP Lusofonia disse...

Ver Comissão Executiva na Economico TV, sexta-feira, 10h

Manias, panics, crashes disse...

o amadorismo na gestão de crise de Eurozone é GRITANTE

Parece que nunca ninguém viu uma crise bancária e não sabe o que fazer

PPP Lusofonia disse...

Faltou cumprir o "critério quantitativo" tabu, o critério de ajustamento mais ortodoxo, a redução de importações.

Com uma quebra do PIB de -1.5%, e o colapso do investimento, as importações ainda aumentaram 1%, includindo 1,4% no agro-alimentar e 3,4% nos produtos energéticos.

Quanta recessão será necessária para reduzir as importações (import compression)?

Commenting on the The Economist disse...

It is indeed wonderful to hear the promise of a "flood of ECB money", which is nowhere to be felt in Lisbon.
Nor anywhere else in Portugal, which is struggling with a severe lack of financial liquidity, as companies lack the working capital funding needed to buy the raw materials to meet their export orders.
Add to that, the lack of the other kind of liquidity, rain, and Portugal is facing another year of higher food and energy imports.
The trade deficit was reduced by 25% in 2011, but it is not clear how we can reduce it further.
Where is the European EXIMBANK which we so sorely need?

Meanwhile, please note that are still "high and dry" in Lisbon, probably because the "flood of funds" never made it behond the TARGET2 system to the borrowers and may have been diverted to bailout the creditors.

The weather forecast is good for tourists though!

See more about the Troika and Portugal in

Greek bondholders should stand pat disse...

For local bondholders to take a loss on their own sovereign debt is to turn the logic of international finance on its head and it will create the worse sort of precedent while trippling the hardships on the local savers who are already paying higher taxes, and suffering falling incomes under the austerity program.
Recall that the problem is one of excecessive EXTERNAL debt, that it was the external investors who facilitated the current account deficits.
Local savers must be saved if they are to save the country in the future
PPP Lusofonia

PPP Lusofonia disse...

Alguns analistas apontam que Portugal precisa de
- gerir expectativas que não será necessário um segundo bailout
- manter os centros de decisão em Portugal
- aumentar o investimento

Antes pelo contrário, Portugal precisa de
- esclarecer que não irá recorrer o outro bailout para proteger os credores
- procurar manter os centros de produção em Portugal, reduzindo as importações
- aumentar as exportações, por forma a aumentar o retorno dos investimentos públicos e privados feitos no passado.