questions about economist article on latin america

Discussion in 'Economics' started by izno, Aug 13, 2011.

  1. izno

    izno

    1. According to the article Latin America has high interest rates to deal with inflation and at the same time has high consumption and a very low savings rate. I'm curious as to why the savings rate is so low given the high interest rates.

    2. "to preach fiscal adjustment amid abundance is very difficult, because of the social demands".

    My guess is the author is referring to increasing public sector incomes but am i missing something?
     
  2. The interest rate has probably risen to encourage more saving. It is probably not enough yet to compensate for the risk.
     
  3. In Latinamerica lending rates are high, but deposit rates are low. Banks lend at 15-20% average, but pay 4% or less for deposits.
    That's why people don't save: low rates plus abusive commissions imply that money in savings accounts will erode quickly.
     
  4. 1. Inflation
    2. Yes, as well as spending on various safety nets.
     
  5. rosy2

    rosy2

    rates are high because the risk of the governments ding something crazy... devalue, ca[ital controls, etc

    people dont save because of the risk the gov't will do something crazy. That was the case in argentina.
     
  6. izno

    izno

  7. izno

    izno

    do you have a link/source?

    I had a quick look at brazil savings account rates and this site says they are 0.5% at the 'taxa referencial' which is at about 12%. with inflation at ~6% real savings rates are still 6%.
    http://brazil.angloinfo.com/countries/brazil/banking.asp