International -- Readers Report
The Perils Ahead for Argentina (int'l edition)
As you say in "The panic has subsided--but not the debt" (Latin America, Nov. 27), there are plenty of banana peels in President de la Rua's path. The main banana peel left over by the Menem administration is the convertibility law of 1991, which overvalues the peso by fixing the parity at one peso=one dollar, while the true equilibrium exchange rate is around two pesos=one dollar.
The wrong parity has profound depressive effects. To counteract those effects, former Finance Ministers Domingo Cavallo (1991-96) and Roque Fernandez (1996-99), with the support of the International Monetary Fund, proposed large fiscal deficits financed with increasing amounts of foreign debts and sales of government assets.
But now the external debt is seven times the country's annual exports. Moreover, fiscal deficits were unable to combat unemployment plus underemployment, which after 1995 added up to 30% of the labor force. This critical employment situation continues today, and if it is not resolved soon, it is a time bomb. The annual interest payments on external public debt are now close to half the size of the government budget. Under the circumstances, more loans will be of only short-term help, but they will exacerbate the problem of solvency over the medium and long term.
Only with a freely floating exchange rate, fiscal austerity right now, and appropriate monetary reform and policy, including the undoing of the partial dollarization of the economy, will Argentina be able to reach full employment over the short and medium term and repay foreign debt over the long term.
Buenos AiresReturn to top
There's Just One E-Mail System at Nestle (int'l edition)
I appreciated the lively and informative "Nestle: An elephant dances" (e.biz, Dec. 11). Just to set the record straight: Nestle has not five e-mail systems but one (Microsoft Exchange), and the 20 accounting systems in use today (reduced from 140 in 1988) result largely from the specific needs of small markets (such as Syria, which by law requires printing in Arabic) as well as systems of newly acquired companies that will be converted.
Vevey, SwitzerlandReturn to top
Taiwan's Banks Are in Fine Shape, Thanks (int'l edition)
Calculations by independent foreign analysts that nonperforming loans in Taiwan amount to 15% of total bank lending do not take into consideration certain integral aspects of the Taiwanese banking system ("Defusing a debt bomb," Asian Business, Dec. 11). Factoring in these considerations, the Ministry of Finance determined that the overdue loan rate remains at a manageable 5.49%.
And even after taking into account the anomalous loans extended to individuals and enterprises devastated by last September's earthquake to pay for reconstruction, as well as relief loans and loan extensions--most of which will be paid back--issued to financially troubled businesses to recover from hard times, the overdue loan ratio would rise only to 8.39%.
It is true that the Taiwanese banking system is facing some difficulties. But contrary to some media portrayals, there is no indication that the conditions causing the Asian financial crisis in 1997 exist in Taiwan today. Its economy is performing satisfactorily, with a strong currency, a trade surplus that has already reached over $6 billion for the year, and an economic growth rate still projected at 6.5% for 2000 and 6.03% for 2001. In addition, the government, unlike in the countries that suffered worst in 1997, is taking a proactive stance to prevent any kind of fallout. The legislature has lowered business taxes to help banks absorb bad loans and recently passed a law that will ease the mergers of troubled banks.
In fact, according to Taiwan's methods of economic monitoring and calculation--which in the past have amply proved their efficacy, allowing the country to become the 14th-largest trading nation, accumulate $110 billion in foreign reserves, and weather the Asian financial crisis nearly unscathed--the economy remains manageable and ready for the New Year.
Director, Information Div.
Taipei Economic & Cultural Office
New YorkReturn to top