Abstract
This paper elaborates the introduction of surveillance that gave the IMF broader responsibilities with respect to oversight of its members’ policies than existed under the par value system. The IMF’s purview has been broadened under the new system but, by the same token, its members are no longer obliged to seek its concurrence in changes in exchange rates. The continuing volatility of exchange rates, and their prolonged divergence from levels that appear to be sustainable over time, have been matters of growing concern.
Private sector: another view
I read Finance & Development’s interview (March 1985 issue) with Sir William Ryrie, Executive Vice President of the IFC, with great interest.
Sir William mentioned the important role played by the private sector in a country’s development. While this is true, it must nonetheless not be overindulged. In my own country in recent years, when the public sector more or less turned things over to the private sector, the latter proved to be incapable, or hesitating and strict, when it came to hiring. This was not the result of a search for competence, which would be quite understandable, but rather the reflection of other “highly immoral” factors.
The private and public sectors must work together and complement one another; all controls must be exercised by the state, in view of the abuses committed by the private sector.
Nour-Eddine Laghmami Safi, Morocco
Blackmarketing in foreign exchange
Your articles on exchange rate policies in the March 1985 issue by Guy Pfeffermann, “Overvalued exchange rates and development,” and Michael Nowak, “Black markets in foreign exchange,” were of much interest to me.
Pfeffermann’s article was not very explicit on the term “overvalued exchange rate.” This is a relative term that needs some clarification. The exchange rate of any country is the relationship between that country’s domestic currency and those of other countries. When a domestic currency is overvalued in relation to the other currencies, the other currencies are undervalued in relation to that country’s domestic currency.
With regard to Michael Nowak’s piece, the article was indeed quite good in pointing out the causes and repercussions of blackmarketing. However, I did not fully agree with the author when he said measures aimed at repressing black markets in foreign exchange (such as stricter enforcement of exchange control laws and harsher penalties) would make matters worse. These measures would in fact alleviate the problem of inadequate foreign exchange although they would not eradicate blackmarketing.
The only remedial action for blackmarketing is no exchange control law combined with very strict control over the domestic money supply. Of course, devaluation and transitional arrangements are not a panacea for black-marketing in foreign exchange.
G.R. Jones Kenema, Sierra Leone
Latin American debt
Regarding Eduardo Wiesner’s “Domestic and external causes of the Latin American debt crisis” (March 1985). Rather than seeking price stability for its exports, the “South” is attempting to stabilize the international market as a whole, but “trade security” makes it impossible for this to take place. This is confirmed by the fact that between 1972 and 1981 the “South” lost an average of $7-8 billion annually (four times more a year than the amounts received in the form of loans and development assistance). This, combined with the “South’s” inability to better allocate and use foreign loans (owing to the incompatibility of national economic policies with international credit policies), creates an “endless tunnel”: the resulting trade deficit must be covered by an increase in external debt. The author confronts this reality (in general terms) and provides an objective analysis. This, in itself, is a contribution.
Francisco Ceron Santacruz Pasto, Colombia
Publication by outside authors
From time to time readers submit manuscripts to us or enquire about the journal’s publication policy. Finance & Development draws its material from the research and experience of the International Monetary Fund and the World Bank. Its articles are prepared by those directly involved in the work of the two institutions and for this reason the journal is unable to accept unsolicited outside articles. Articles contributed by distinguished guest authors appear occasionally at the invitation of the Editor.
Finance & Development would, however, like to encourage its readers to comment and offer suggestions on the contents of the journal. Space permitting, these are published in our letters column. We urge correspondents to be concise, as space is indeed limited.