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The Limits of Stabilization: Infrastructure, Public Deficits and Growth in Latin America (Latin American Development Forum)

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This book is a reaction to the Latin American fiscal crisis of the early 80s. When several countries ran up huge debts often denominated in foreign currencies. The debts were large relative to the countries GDPs. The International Monetary Fund and the World Bank weighed in with technical advice about reducing these debts. Often, one of the line items was a reduction in national spending on infrastructure.

The authors of the papers in the book argue that such cuts were extremely ill wrought. Because infrastructure is generally conceded to contribute from 19% or more per annum in terms of rate of return on the investment. Whereas the debts have lower interest rates. In sum, as the introduction suggests, this was a very short sighted measure. The bulk of the book goes on to expand on this thesis.

Now [2009], as the entire world goes into a recession, the book's argument takes on a new relevance. Granted, many key developing countries learnt from the 80s experience, and now have strong currency reserves, and much less foreign debt. The governments tend to understand the merit of running surpluses, both at the governmental level and for their citizens. But the returns from infrastructure investment are compelling enough that some deficit spending might be incurred here.

Ironically, one key measure for the US in the new [as I write this, Obama got inaugurated this morning] administration is a proposal for vast infrastructure spending. So maybe the book's thesis also applies to the US.