The amazing shrinking currency

My favorite pastime is to discuss economics with my friend, a professor of dismal science in Brazil. I have a theory that no developing country currency can be pegged to the dollar for a long period of time.

The monetary/political/economic crisis in Asia is proving me right. My argument is that $100 in the U.S., if transferred to a developing country, becomes $79. If you raise this $100 for a pizza parlor in Illinois, you pay a certain interest. If that $100 is going to a developing country, the bank charges higher interest. Not because the banks have anything against developing countries but the risk that the bank never sees its money again is higher. So, before the money leaves the U.S., $100 is now worth $99.

Now the investor is ready to go. The developing country in question does not allow a foreigner to open a business. It needs a local private partner to start up. The partner does not have any capital and takes 10 percent of the investment to grease the machine. This leaves $89.10 for investment in the intended business.

Banking systems in developing countries are lousy by their own nature. Let's say that inefficiencies in the banking system shave off 10 cents and so, $89 remains.

You start the business just to discover that $10 must be invested to train the workforce to prepare people to work for you. That's because the school system invests more money in universities than in the basic school system. That leaves $79 remaining. I'm waiting for my friend's answer.

OSVALDO COELHO

Jakarta