Running the Economy July 1972 to September 1973
C arlos Matus, who became minister of economics after the Lo Curro meeting, enjoyed the reputation of being decisive. He quickly resolved to take the painful action that, he felt, could no longer be avoided -- an increase in the fixed prices and another devaluation of the escudo. Prices would have to be raised to reduce the deficits of the state enterprises which, being financed directly or indirectly by central bank lending, were helping to swell the money supply. The escudo would have to be devalued because exchange rates were again out of line with the rapidly rising internal price level. Both the price increase and the devaluation would have to be large.
It would, of course, have been better if the government had not been forced into the need for such harsh action. Had it possessed a majority in the Congress and the ability to increase taxes on the well-to-do, the government could have controlled the original budget deficit and kept inflation from gathering momentum in the first place. Even given the problem as it stood in mid-1972, with the government facing accelerating inflation and enormous deficits, both in its own budget and in the state enterprises, the ability