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Abstract
Whenever a country undertakes a program of balance of payments adjustment, it needs to consider whether a change in the exchange rate is required to achieve a viable external position and a reasonable rate of economic growth over the medium term. The ways in which exchange rate policy works to correct balance of payments problems and to improve the allocation of resources are well known and need no repetition here. To provide a setting for the discussion in the remainder of the paper, however, this section briefly considers four conceptual issues: (1) the use of indicators to assess the appropriateness of the exchange rate in adjustment programs; (2) the role of exchange rate policy in relation to other program policies; (3) the extent to which exchange rate stability should in itself be a proximate policy objective in adjustment programs; and (4) the attention given to exchange rate policy when use of Fund resources is involved.
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