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Multiple Exchange Rate Policies in Latin America*

Published online by Cambridge University Press:  02 January 2018

Wolfgang König
Wolfgang König*
Affiliation:
El Colegio de México, México, D. F.
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Extract

The persistence of trade and exchange controls in developing countries is of growing concern among economic circles and has been dealt with in recent discussions and papers, both published and unpublished. In Latin America exchange practices have severely tested the International Monetary Fund (IMF), which represents the prevailing ideology of a liberal international monetary policy. The principles and activities of this institution have tended to conflict in many ways with the development efforts of Latin American countries—a fact that has not always been fully recognized due to the confidential nature of many of the Fund's actions. One important issue has been the problem of multiple exchange rates, which, in many Latin American countries, came to constitute an important instrument of the policy of industrialization through import substitution.

Type
Research Article
Information
Journal of Inter-American Studies , Volume 10 , Issue 1 , January 1968 , pp. 35 - 52
Copyright
Copyright © University of Miami 1968

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Footnotes

*

A Spanish version of this paper is due to appear in the February 1968 issue of Comercio Exterior, published by Banco Nacional de Comercio Exterior, S.A., México.

References

1 For some interpretations given on the modifications of Latin American exchange sectors see Woodley, John R., “Tendencias recientes en los mercados de cambio,” CEMLA, Boletín Quincenal, Suplemento, 1960, 369-72Google Scholar; Santiago Marcario, “Protectionism and Industrialization in Latin America,” United Nations, Economic Bulletin for Latin America, IX, No. 1 (March, 1964), 66; F. d’ A. Collings, “Recent Progress in Latin America toward Eliminating Exchange Restrictions,” IMF Staff Papers, VIII, No. 2 (May, 1961), 280-81; de Vries, Margaret G., “Multiple Exchange Rates: Expectations and Experiences,” IMF Staff Papers, XII, No. 2 (July, 1965), 308 Google Scholar; Schott, Francis H., The Evolution of Latin American Exchange-Rate Policies since World War 11, Essays in International Finance, No. 32, Princeton University, January, 1959, pp. 8–12 Google Scholar; Felipe Pazos, “Política Monetaria y Cambiaría Latinoamericana,” Comercio Exterior, México, VI, No. 10 (octubre de 1956), 484-85; Jorge del Canto Schramm, “El papel del Fondo Monetario Internacional en la política de los países latinoamericanos hacia la estabilización,” El Mercado de Valores, Mexico, Semanario de Nacional Financiera, S.A., Ano XIX, No. 28 (13 de julio, 1959), 358.

2 Cuba, since the second of April, 1964, is no longer a member of the Fund.

3 See IMF, Annual Report, 1948, pp. 65-72. According to the IMF, a multiple rate practice is “an effective buying or selling rate which, as the result of official action, e.g., the imposition of an exchange tax, differs from parity by more than one per cent.”

4 The Fund has published in its Annual Reports statements on consultations with Ecuador (1947), Chile (1948), Peru (1949), and Colombia (1949).

5 IMF, Annual Report, 1948, p. 28.

6 Camille Gutt, The Practical Problem of Exchange Rates (IMF, Washington, 1948), p. 17.

7 IMF, Report of the Executive Directors and Summary Proceedings, 1946, p. 25.

8 See for example Wallich, Henry C., “Some Aspects of Latin American Economic Relations with the United States,” Harris, Seymour E. (ed.), Foreign Economic Policy for the United States (Cambridge: Harvard University Press, 1948), pp. 155–56 Google Scholar; Urquidi, Víctor L., The Challenge of Development in Latin America (London: 1946), pp. 136-37Google Scholar; Richard F. Behrendt, Inter-American Economic Relations, Problems and Prospects, The Committee on International Economic Policy in Cooperation with the Carnegie Endowment for International Peace, New York, 1948, p. 42.

9 Paúl Prebisch, “El desarrollo económico de la América Latina y algunos I de sus principales problemas,” El Trimestre Económico, 16 (1949), 394.

10 Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Ecuador, Honduras, Nicaragua, Paraguay, Peru, Uruguay, and Venezuela.

11 These views were expressed by various Latin American Governors, see IMF, Summary Proceedings, 1949, p. 80; 1950, p. 121; 1951, p. 89; 1952, p. 74.

12 The Governor for Bolivia, IMF, Summary Proceedings, 1957, pp. 38-39.

13 Governor for Paraguay, IMF, Summary Proceedings, 1958, p. 122.

14 Governor for Chile, ibid., p. 93.

15 IMF, “Fund Policies and Procedures in Relation to the Compensatory Financing of Commodity Fluctuations,” IMF Staff Papers, VIII, No. 1, (1960), 23-24.

16 Within a smaller scope of reforms Peru unified her exchange rates in 1960 and Costa Rica and Nicaragua in the early sixties. Brazil unified her exchange markets in March, 1961, but maintains various effective exchange rates.

17 For these developments, see also Miguel S. Wionczek, “La integración regional de América Latina y la inversión extranjera directa,” CEMLA, Boletín Mensual, XII, No. 12 (diciembre, 1966), 581-82.

18 A. Frondizi, in a radio message on the 29th of December 1958; see Banco Central de la República Argentina, Memoria Anual, 1958, p. VIII.

19 IMF, Annual Report, 1948, p. 67.

20 IMF, Annual Report, 1957, p. 166.

21 See F. d'A. Collings, Recent Progress in Latin America, p. 279 and G. A. Costanzo, Programas de estabilización económica en América Latina, CEMLA, Conferencias, Mexico, 1961, pp. 44-45. One can suppose that even less time was calculated for the tariff reforms proposed by the Fund.

22 The following survey is based on IMF, Report Exchange Restrictions, 1967, and reflects the situation in early 1967.

23 F. d'A Collings, Recent Progress in Latin America, p. 278.

24 Ibid., pp. 279-80.

25 The following survey of Latin American exchange controls is based mainly on IMF, Report on Exchange Restrictions, 1967 and reflects the situation in early 1967. It includes also countries that either have retained multiple rates or have reintroduced them, as well as some states which have never made use of them.

26 It should also be pointed out that multiple rates and, to a considerable extent, quantitative restrictions are still used.

27 Jorge Marshall, “Advance Deposits on Imports,” IMF Staff Papers, VI, No. 1 (1957), 240-41.

28 See Birnbaum, Eugene A. and Oureshi, Moeen A., “Advance Deposit Requirements for Imports,” IMF Staff Papers, VIII, No. 1 (1960), 125.Google Scholar

29 This can also be concluded from an Executive Board decision of June 1 of 1960 in which the Fund declared that its members, which are contracting parties to the GATT and which impose import restrictions for balance of payments reasons, will facilitate in Fund's collaboration with the GATT “by continuing to send information” concerning such restrictions to the Fund. In the same context, the Fund also mentioned a “new and increased use” of such restrictions. See IMF, Annual Report, 1961, pp. 37-38; pp. 135-37.

30 It seems, however, that for these countries, recent examples being Costa Rica and the Dominican Republic, there is a certain trend towards an increased application of exchange restrictions and surcharges due to the diminished importance of the dollar zone in times of convertibility of industrial countries’ currencies. It has been assumed that necessary changes in these traditional societies will lead, sooner or later, to disequilibriums in their external sectors similar to those of the rest of Latin America. See Víctor L. Urquidi, Teoría, realidad y posibilidad de la ALALC en la integración económica latinoamericana, Jornadas, 61, EL Colegio de Mexico, 1966, p. 29.

31 Furthermore, in Chile in 1955 and Argentina in 1958, shortly before the stabilization programs were implemented, important changes of the foreign investment legislation were made that improved the investment climate.

32 See Fritz Machlup, International Monetary Systems and the Free Market Economy, Reprints in International Finance, No. 3, February 1966, International Finance Section, Princeton University, Princeton, New Jersey, p. 2.

33 Dr. Javier Márquez, in a commentary on Jorge Marshall, “Control de cambios y desarrollo económico,” in Howard S. Ellis, El desarrollo económico y América Latina (México-Buenos Aires: Fondo de Cultura Económica, 1960), pp. 532-34.

34 Raúl Prebisch, “El patrón oro y la vulnerabilidad económica de nuestros países,” Jornadas, 11, El Colegio de México, without indication of the year of publication.

35 See for example Nicholas Kaldor, “Los tipos de cambio duales y el desarrollo económico,” CEP AL, Boletín Económico de América Latina, IX, No. 2 (noviembre, 1964), 214-23, and Eugene Richard Schlesinger, Multiple Exchange Rates and Economic Development, Princeton Studies in International Finance, No. 2, Princeton University Press, 1952. See also the report of a group of experts on the problem of payment agreements among developing countries, UNCTAD, “Acuerdos de pagos entre países en desarrollo para la expansión del comercio,” CEMLA, Boletín Mensual, XIL Numero 9 (septiembre, 1966), 451-52.