Fischer, Stanley, Ratna Sahay and Carlos Végh (2002), “Modern Hyper- and High Inflations” Working Paper No. 02/197, International Monetary Fund, Washington.
Prepared by Sanket Mohapatra (AFR).
There may also have been an attempt to make up for a shortfall in external financing as two successive adjustment programs supported by Fund Stand-By Arrangements in 1998 and 1999 went off-track.
See Chapter V on “Estimating the Short Run Equilibrium Exchange Rate.”
Although the government pays highly negative real interest rates on treasury bills, banks and other financial institutions (pension funds, insurance funds) appear to have hold them willingly partly because there are few alternatives, other than real assets, that provide a better rate of return. Many nonbank financial institutions’ holdings of treasury bills exceed the mandated liquidity ratio.
Exchange losses stemmed mainly from the fact that although exporters were paid the more depreciated tender rate, almost half the inflows to the official market were sold outside the tender at Z$824/US$ for official imports of oil, electricity and essential inputs.