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

  • Sebastian Edwards
  • Julio A. Santaella

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4047.

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Date of creation: Apr 1992
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Publication status: published as Retrospecive on the Bretton Woods System Eds. Michael Bordo and Barry Eichengreen UCP 1993
Handle: RePEc:nbr:nberwo:4047
Note: IFM
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