Vittorio Corbo suggests financing public expenditure with taxes in order not to increase debt.

The ex-president of the Central Bank of Chile, Vittorio Corbo, recommended orderly and well-supervised macroeconomic handling, among other measures, for countries with small economies, such as the Dominican Republic, in order to avoid falling into economic crises.

Within this context, he recommended financing public expenditure with taxes so as not to amass debt and having a monetary policy aimed at maintaining low inflation and a flexible exchange system “so as not to be defending parities that end up being unsustainable.”

He said that it was necessary to have a Central Bank which “instead of being concerned with financing public expenditure, is more concerned with maintaining macroeconomic stability and a sound banking system.”

Corbo, an associated researcher at the Center for Public Studies (CEP) and a regular professor at the Catholic University of Chile, said that these measures were necessary in countries with small economies, in order to avoid falling into financial crises.

The economist pointed out that the countries that have managed their economic affairs with more control and precautions are the ones that have best weathered the effects of the recent serious global financial crisis, which is still wreaking havoc in many countries.

He said that the countries that were not seriously affected by the crisis were the ones that managed their finances more carefully and that lived according to their means, with a more orderly fiscal situation. And most important of all, they managed their financial system better, with better regulations and better supervision.

“The most important thing for countries with small economies like the Dominican Republic, Costa Rica, Uruguay and Chile, is to avoid financial crises, and that is achieved through more orderly macroeconomic handling, among other measures,” said Corbo.

The Chilean economist spoke at the international pension fund managers’ seminar held for two days at a hotel in this tourist locality in the municipality of Higuey, attended by directors of social security agencies, researchers and experts in the field, economists and presidents of central banks from the United States, Europe and Latin America.

The Chilean expert was one of the main speakers in this congress organized by the International Federation of Pension Fund Administrators (FIAP) and the Dominican Association of Pension Fund Managers (ADAFP)

Among the speakers in the inaugural ceremony of the seminar were Guillermo Arthur, president of FIAP and Héctor Valdes Albizu, president of the Central Bank.

ZOOM: Pension Funds

In his speech, Corbo said that macroeconomic stability is crucial for the smooth running and survival over time of any country’s pension fund system, warning that a financial crisis could bring it to its knees. He said that financial crises open appetites for the expropriation of the pension funds and that the subsequent inflation destroys existing goods and investments, to the detriment of the country and the workers, who are the contributors to the funds.

You can download below a PDF file with the original image of this news (only in Spanish).