NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Devaluation Controversies in the Developing Countries: Lessons From the Bretton Woods Era

Sebastian Edwards, Julio A. Santaella

NBER Working Paper No. 4047
Issued in April 1992
NBER Program(s):      IFM

This paper uses historical data from the Bretton Woods era to analyze the effectiveness of devaluation-based adjustment programs in the developing countries. Forty eight major devaluations undertaken between 1954 and 1971 are investigated in detail in an effort to understand the circumstances leading to these adjustment programs, as well as their degree of effectiveness. An important aspect of the analysis is the distinction between devaluations undertaken within the context of IMF programs, and devaluations implemented independently. We find out that, in general, countries with lower income per capita and deeper economic problems tended to seek IMF support with greater frequency. Also, our analysis indicates that countries with left-wing leaning governments were less likely to embark on IMF programs. With respect to the effectiveness of these devaluation programs, our findings support the notion that devaluations accompanied by restrictive and consistent macroeconomic policies are an efficient and powerful adjustment tool. Our historical investigation also shows that, in general, countries that embarked on IMF stand-by programs tended to perform better than countries that adjusted on their own.

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Document Object Identifier (DOI): 10.3386/w4047

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