A HEAVY RELIANCE upon exchange controls and restrictions played a prominent part, during the immediate postwar period, in the economic policies of many countries in Latin America. In recent years, most of these countries have moved a long way in the direction of freer trade and payments arrangements—a movement with which the International Monetary Fund has almost always been closely associated. However, memories of the era of arbitrary administrative interference with international transactions die hard, and the extent to which Latin America has progressed toward eliminating such restrictions is not always fully appreciated. Furthermore, some lessons of more general applicability are suggested by Latin America’s extensive experience with devices intended to influence the internal economic situation through the exchange system, and by the fact that such devices are now being replaced rapidly by more basic economic policies. With these thoughts in mind, this paper is intended to outline the decline in the use of exchange restrictions in Latin America during recent years and to describe the position of relative freedom from discriminatory and restrictive practices which has now been reached.
The Latin American countries which used to make extensive use of exchange restrictions are almost exclusively on the Southern Continent. The Central American and Caribbean Republics, with few exceptions, have had virtually no exchange restrictions during the postwar period. Four of these countries (El Salvador, Guatemala, Mexico, and Panama) accepted the obligations of Article VIII, Sections 2, 3, and 4, of the Fund Agreement as soon as they joined the Fund, and all but two of the remainder accepted these obligations in the early 1950’s. Among the countries on the Southern Continent, only Peru has taken a similar formal step (on February 15, 1961). Particular significance attaches to the action of Peru, because this was the first country to institute (in 1954) a comprehensive stabilization program with technical and financial assistance from the Fund. Programs of the same type were subsequently put into effect in a number of other South American countries, and played a major role in ensuring the success of the accompanying exchange reforms.
Mr. Collings, economist in the Exchange Restrictions Department, is a graduate of Queen’s University (Canada) and of the Johns Hopkins University. This paper is a revision of one originally presented at the Sixth Meeting of Central Bank Technicians of Latin America in Guatemala City, November 1960.
References to “essentially unitary” exchange systems in this paper do not necessarily imply that some multiple currency practices, as defined by the Fund, may not be present.
Since this paper was written, Brazil has taken further steps to simplify its exchange system and to introduce more realistic rates of exchange. When announcing these moves on March 14, 1961, the Government of Brazil notified the Fund that it intends to proceed to still further simplification of the exchange system in due course.
However, Cuba’s 2 per cent exchange tax was in effect for a number of years before the recent measures.
China (Taiwan) also uses a single fluctuating rate for most transactions, but in conjunction with a controlled official rate which applies to some transactions.
The Mexican peso was devalued by more than 60 per cent in a number of steps between 1947 and 1954; since then, however, it has remained unchanged.
These surcharges, however, have been substantially reduced from the levels in effect immediately following the exchange reform. Advance deposits have also been eliminated.
For example, Argentina in 1952–55 and 1956—58, Bolivia in 1952–53 and 1954–56 and Paraguay in 1951–56. The first two of these countries had previously attempted partial simplification of their exchange systems, only to find themselves drawn back into complexity again. Examples of the proliferation of multiple rates are by no means limited to Latin American countries; similar cases occurred in Turkey in 1956–58 and Spain in 1955–59, among others.
The cost of living in La Paz increased by 480 per cent in 1956; in 1957, following unification of the exchange rate and the adoption of a comprehensive internal program, it declined by 14 per cent.
Brazil’s auction system was eliminated on March 14, 1961 (see footnote 2), although some imports of luxury goods will be subject to licenses auctioned on the basis of world-wide quotas.
For a more detailed discussion of advance deposits, see Eugene A. Birnbaum and Moeen A. Qureshi, “Advance Deposit Requirements for Imports,” Staff Papers, Vol. VIII (1960–61), pp. 115–25.
The index (1953 = 100) of terms of trade for Latin America as a whole was 110 in 1954, and then declined as follows: 1955—101, 1956—98, 1957—94, 1958—90, 1959—86. (Data are from International Financial Statistics.) However, this index conceals divergent movements in several individual countries.