domingo, 30 de mayo de 2010

Where is the money? II

Before, we talked about how every country needs money to invest and grow. It seems like the neoliberal model of waiting for the money to come from outside it is not a good idea. If money is needed. Why so many developing countries have so much international reserves?
International reserves are money (usually dollars, euros or British pounds) that are just sitting there in the central banks. International reserves serve to signal how well an economy is and are savings for a crisis. The problem is not that countries have savings the problem is that those savings are almost never used when they are needed and for what they are supposed to be used. Many times that money is used to pay foreign (usually American and European) investors when the firms and government cannot do so. So foreign investors end up with their money and poor citizens that are not to blame for the crisis end up with higher taxes and less services.
This is another reason why the neoliberal model is not right. At the end of the day money from inside the country could be used to invest and save with a good investment plan and not allowing the markets to do as they please. Whoever thinks the contrary has to explain how miracles that used this strategy like China ended up where they are now.

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