Advise the government of a new democracy
The Scenario:
The chief of staff of a newly elected government has just contacted you to help advise it on
how best to design their economic policy approach. The government, led by President
Beatriz Benevolente of the left-leaning National Freedom Party (NFP), has been elected to a
five-year term. President Benevolente is the first democratically elected president in more
than 20 years. The nation’s democratization came after two decades of military rule, where
the presidency was rotated among the four branches of the armed forces (navy, army, air
force, marines).
However, economic mismanagement by the outgoing military authoritarian regime resulted
in a major macroeconomic crisis (including hyperinflation that reached 1,000%, a currency
crisis that saw the nation’s currency devalue from 5 soles to 500 soles per pound sterling,
massive capital flight and de-investment, and an economic retraction of 20 percent last
year) that led to mass riots throughout the nation and to the nation’s elites opposing a
continuation of this regime. The military agreed to step down and reinstate the nation’s
democratic constitution, including its presidential system and single chamber legislature
whose members are elected across 20 nation-wide districts according to proportional rule.
The developing nation is small, comprised of just 5 million people who are mainly employed
in manufacturing and agriculture. The nation suffers from high inequality, thanks to the
large numbers of urban and rural poor that engage in informal or itinerant work. The
nation’s socio-economic elites control large manufacturing enterprises, large tracts of land,
and mineral wealth. The nation’s small but growing middle class mainly holds managerial
positions in the manufacturing industry, owns small businesses in the services sector, or
work in the nation’s sizeable public sector (bureaucracy, schools/universities, healthcare
system). There is a small but sizeable urban and agricultural working class that hold formal
jobs in the nation’s manufacturing and agricultural industries and is unionized.
President Benevolente’s NFP holds 40% of the seats in the 100-member national congress.
Drawn from both the nation’s agricultural and manufacturing workers, NFP voters range
from center-left to radical left in their economic and social policy preferences. 25% of the
seats are held by the radical left National Workers’ Party (NWP), a loose band of different
trade and agricultural groups that advocate for collectivization. 20% of the seats are held by
the right-leaning National Reconstruction Party (NRP) whose voters are drawn from the
nation’s middle classes, which are conservative both economically and socially but generally
pro-democracy. 15% are held by a right-leaning extremist party, the National Order Party
(NOP), that represents the nation’s landowners, manufacturers, and business owners that
did not support democratization but supported and end to the military regime due to its
mismanagement of the economy.
Instructions:
Faced with the challenge of stabilizing the economy and ensuring support, the new
government needs to consider the best portfolio of domestic and international economic
policy choices. The government would like you to alert them to their main risks, the main
policies for addressing them, and the main rewards for doing so. Please do so in the
following order:
a. Introduce the main risks to its survival (about 350 words)
b. The best fiscal and monetary policy strategy (about 350 words)
c. The best strategy for redistribution across socio-economic groups (about 350 words)
d. The best strategy for redistribution across regions (about 350 words)
e. The best incoming foreign direct investment strategy (about 350 words)
f. The best trade policy strategy (about 350 words)
g. The best currency policy strategy (about 350 words)
h. Outline the main rewards that can be expected from these policies (about 350
words)
*use attached readings*
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