Exchange Rate Policies in Latin American and East and Southeast Asia
A Comparative Study
By Paulo Gala | October 18, 2005
Abstract: Some authors argue in favor of a real exchange rate targeting strategy for developing countries in what could be called a development approach to exchange rates. According to the argument, relatively undervalued exchange rates have been a key factor in most East and Southeast Asian successful growth strategies. Chile in the middle of the 80s, India since 1994 and Mauritius since the middle of the 80s have all benefited from a competitive real exchange rate policy. Most Latin American and African countries, on the other hand, have suffered from severe balance of payment crises due to exchange rate overvaluation. Chile and Mexico in the early eighties as well as Mexico, Brazil and Argentina in the nineties are good examples. Following this so-called development approach, the objective of the paper is to compare the path of exchange rate levels in Asia and Latin America from 1970 to 1999. After briefly discussing the theoretical framework behind these ideas, the work reviews some aspects of exchange rate management for some countries in those regions based on a survey of case studies. It also presents an evolution of real exchange rate levels for a set of 20 countries based on World Bank data and on an index of exchange rate distortion. The focus in Latin America is on Mexico, Chile, Argentina and Brazil, the most important economies in the region. In Asia, the focus is on the first-tier NICs, South Korea, Taiwan, Hong Kong and Singapore and the second-tier NICs, Thailand, Malaysia and Indonesia. Some attention will also be paid to China.
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