Question

Argentina, Brazil and Mexico all adopted (albeit with some differences) a certain type of exchange-rate policy during the 1990s. a) What was the policy? b) What motivated it? c) What price did the countries ultimately pay for the adoption of such a policy? Explain

Answer 1

a. All the countries adopted crawling peg system of exchange rate in 1990s.There was liberalization of trade flows and deregulation in the capital account of these economies.

b. In order to receive massive capital inflow of foreign currency and for stabilization of economy.

c. But in these countries stabilization came along with Real Exchange Rate appreciation , large current account deficits, and growing external debt which led to massive financial and currency crisis in 2001-02 in Brazil and other Latin American nations.