1. Williamson, John, The Failure of World Monetary Reform, 1971–74 (Sunbury-on-Thames 1977), p. xiiiGoogle Scholar.

2. Various states began to adopt the practice of flexible exchange rates during the years 1971–73 (the UK began floating the pound in mid-1972). At that time, floating rates were unlawful under the Articles of Agreement of the International Monetary Fund (IMF), although in January 1976 the IMF's Interim Committee agreed to amend the Articles to allow floating. See note 4 infra. This Second Amendment of the Articles entered into force in 1978.

3. A notable, though only partial, exception to this generalization is the European Monetary System (EMS), inaugurated in March 1979, to which eight of the ten EEC states (all except the UK and Greece) adhere. The basic policy of the EMS is that members will maintain more or less fixed rates inter se but will float as a bloc against the rest of the world. On the working of the EMS generally, see the January 1979 number of Euromoney; and ‘A Boost for the Boa? Beware’, The Economist, 14 March 1981.

4. Article IV of the IMF Articles of Agreement, as amended, permits any of three alternative exchange-rate policies: (1) participation in a regional monetary arrangement such as the EMS; (2) tying one's currency either to another currency or to a basket of currencies such as the Special Drawing Right (SDR); and (3) ‘other arrangements’ of a state's choice (i.e., flexible rates). As of 30 June 1981, 88 developing countries were pegging their currencies: 56 to other currencies, 14 to the SDR, and 18 to some other currency basket. Four adjusted their currencies according to a set of indicators; while 28 followed ‘other arrangements’. International Monetary Fund, Report of the Executive Board for the Fiscal Year Ended April 30, 1981 (Washington, 1981), p. 54Google Scholar.

5. On the transmission of inflation in the international economy, see generally Katz, Samual I., ‘“Imported Inflation” and the Balance of Payments’, The Bulletin, New York University Graduate School of Business Administration, Institute of Finance, Nos. 91–92 (New York, 1973)Google Scholar; Branson, William H., ‘Monetarist and Keynesian Models of the Transmission of Inflation’, American Economic Review, Papers and Proceedings, 65 (1975), pp. 115–19Google Scholar; Machlup, Fritz, ‘How Inflation is Transmitted and Imported’, Euromoney, September 1975, pp. 58–63Google Scholar; and Corden, Warner Max, Inflation, Exchange Rates, and the World Economy (Oxford, 1978)Google Scholar. See also note 55 infra.

6. An economist of the monetarist school would agree with the conclusion arrived at in the text, although he would analyse the underlying mechanism differently. He would observe that a state which was inflating was constantly expanding its stock of money. As its price level rose, its nationals would tend increasingly to do their spending abroad, where the real value of their cash balances was higher. That is, the country would begin to export its money supply, thereby causing inflation abroad. Ibid., p. 59. See also Branson, William H, op. cit.Google Scholar; and Tavlas, George S., ‘Keynesian and Monetarist Theories of the Monetary Transmission Process: Doctrinal Aspects’, Journal of Monetary Economics, 1 (1981), pp. 317–37CrossRefGoogle Scholar.

7. We shall return to this question in the last part of the paper.

8. This doctrine, which is known as the purchasing power parity theory, is particularly important in monetarist analyses of the international economy. The theory has been controversial ever since it was propounded in its modern form in the 1920s.

9. On the question of foreign currency reserves generally, see Heller, H. Robert, ‘International Reserves and World-wide Inflation’, Staff Papers, 23 (1976), pp. 61–87CrossRefGoogle Scholar; Crockett, Andrew, ‘Control Over International Reserves’, Staff Papers, 25 (1978), pp. 1–24CrossRefGoogle Scholar; and Heller, H. Robert and Khan, M. S., ‘The Demand for International Reserves Under Fixed and Floating Exchange Rates’, Staff Papers, 25, (1978), pp. 623–49CrossRefGoogle Scholar. Concerning the need for an international authority to manage world reserves so as to increase world welfare generally, see Fleming, J. M., ‘International Liquidity: Ends and Means’, Staff Papers, 8 (1961), pp. 439–63CrossRefGoogle Scholar; and Fleming, J. M., ‘Toward Assessing the Need for International Reserves’, Essays in International Finance, No. 58 (1967)Google Scholar.

10. Basically, the flexible-rate regime has proved to be a disappointment in that it has not, after all, insulated the various domestic economies from the effects of balance of payments disequilibria. One reason is that developed countries have not actually allowed their currencies to float freely; in 1979, for instance, central banks spent over $40,000 million supporting their currencies (a practice which has been dubbed as ‘dirty floating’).

11. By 1978 this figure had risen somewhat, largely as a consequence of the weakness of the US dollar at that time. Brookhouse, Roger, ‘Gold Is Not a Cure-all’, Euromoney, December 1980, pp. 153–56Google Scholar. With the massive oil price rises of 1979–80, the reserve positions of the developing states came under heavy pressure once again. In 1980, for example, there was a sharp reduction in real terms in the value of aggregate reserves of the developing countries. International Monetary Fund, Annual Report of the Executive Board for the Financial Year Ended April 30, 1981, pp. 32–33.

12. Nagy, P., ‘It's Time to Call in the Commercial Banks’, Euromoney, Febrauary 1979, pp. 114–22Google Scholar. These figures do not include the developing countries.

13. The Eurocurrency market is a system of foreign currency deposits (still mostly US dollars) which are held by banks located in Europe and outside the control of state monetary authorities. Since it is unregulated, its size is a matter of some speculation. One source has given as a ‘best estimate’ the figure of $400,000 million at the end of 1979, with a possible projection of over $500,000 million by the end of 1980. ‘The Euromarket Maze in Money and Finance’, The Economist, 29 November 1980Google Scholar.

14. On the position of the developing countries in the international monetary order generally, see Helleiner, G. K., ‘The Less Developed Countries and the International Monetary System’, Journal of Development Studies, 10 (1974), pp. 347–73CrossRefGoogle Scholar; Meier, G. M., ‘”Jamaica Agreement”, International Monetary Reform, and the Developing Countries’, Journal of International Law and Economics, 11 (1976), pp. 67–89Google Scholar; Cline, William R., International Monetary Reform and the Developing Countries (Washington, 1976)Google Scholar; Verbit, Gilbert F., International Monetary Reform and the Developing Countries: The Rule of Law Problem (London and New York, 1975)Google Scholar; Diaz-Alejandro, C., ‘Less Developed Countries and the Post-1971 International Financial System’, Princeton Essays in International Finance, No. 108 (1975)Google Scholar; Zolotas, Zenephon, International Monetary Issues and Development Policies (Athens, 1977)Google Scholar; Bird, Graham, The International Monetary System and the Less Developed Countries (London, 1978)Google Scholar; Jayagovind, A., ‘The New International Monetary Order’, International Studies, 18 (1979), pp. 323–38CrossRefGoogle Scholar; and ‘Ministry Without Portfolio: International Monetary Fund; A Survey’, The Economist, 26 September 1981Google Scholar.

15. Another extra burden which developing states suffer under the new regime results from the fact that even though most developing-state currencies are fixed either to another currency or to a basket of currencies, that other currency or basket nevertheless fluctuates against other currencies of the world. In other words, the developing countries cannot be said truly to be living in a fixed-exchange-rate world unless all exchange rates are fixed. Under the post-1973 regime, therefore, the developing states face increased costs associated with the fluctuations of their currencies vis-a-vis those currencies to which they are not tied. See Hooper, Peter and Kohlhagen, S. W., ‘The Effect of Exchange Rate Uncertainty on the Prices and Volume of International Trade’, Journal of International Economics, 8 (1978), pp. 483–511CrossRefGoogle Scholar. In practice, this difficulty can be minimized, though not eliminated, by the developing state's tying its currency to that of its major trading partner. Concerning the various possible strategies which developing states might follow in this regard, see Stanley Black, W., ‘Exchange Policies for Less Developed Countries in a World of Floating Rates’, Essays in International Finance, No. 119 (1976)Google Scholar; Lipschitz, Leslie, ‘Exchange Rate Policy for a Small Developing Country and the Selection of an Appropriate Standard’, Staff Papers, 26 (1979), pp. 423–49CrossRefGoogle Scholar; and Lipschitz, Leslie and Sundararajan, V., ‘The Optimal Basket in a World of Generalized Floating’, Staff Papers, 27 (1980), pp. 80–100CrossRefGoogle Scholar. See also Kenen, Peter B., ‘Floats, Slides and Indicators: A Comparison of Methods for Changing Exchange Rates’, Journal of International Economics, 5 (1975), pp. 107–151CrossRefGoogle Scholar.

16. It is true that between 1975 and March 1979 no fewer than 75 developing states were successful in tapping the Euromarkets for financing. In each year, however, over half of this funding went t o just five countries: Brazil, Mexico, Argentina, the Philippines and South Korea. ‘Rich Banks and Poor Countries’, The Economist, 03 December 1979Google Scholar. It is also true that by the end of 1978, 39 per cent of the total indebtedness of the Third World states was owed to commercial banks, as opposed to 16 per cent in 1970. This figure, however, reflects the major role which the Euromarkets played in the recycling of petrodollars following the 1973–74 oil price rises—some 57 per cent of the recycled surpluses are estimated to have passed through the Euromarkets. See P. Nagy, op. cit. In light of the generally much higher interest rates prevailing in 1979–80, together with the fact that commercial banks are thought likely to be wary of increasing their exposure in developing countries much further, it appears likely that the Euromarkets will play a smaller role vis-a-vis the developing countries in this present oil price rise than in the earlier one of 1973–74. ‘Where Are the Borrowers?’ The Economist, 01 November 1980Google Scholar; and ‘The Richer LDCs Suffer’, Euromoney, December 1980, p. 13Google Scholar. On the relationship between the Eurocurrency markets and the developing countries, see Aronson, Jonathan David, Money and Power: Banks and the World Monetary System (Beverly Hills, 1977), pp. 161–84Google Scholar; Angelini, Anthony, Eng, Maximo and Lees, Francis A., International Lending, Risk and the Euromarkets (London, 1979)CrossRefGoogle Scholar; Eaton, J. and Gersovitz, H., ‘LDC Participation in International Financial Markets’, Journal of Development Economics, 1 (1980), pp. 3–21CrossRefGoogle Scholar; Bird, Graham, ‘Financing Balance of Payments Deficits in Developing Countries: The Roles of Official and Private Sectors and the Scope for Cooperation Between Them’, Third World Quarterly, 3 (1981), pp. 473–88CrossRefGoogle Scholar; and Banks and the Balance of Payments: Private Lending in the International Adjustment Process, Cohen, Benjamin (ed.), (New Jersey, 1981)Google Scholar.

17. The following figures offer a brief picture of how the IMF's clientele has changed over the years. Up to the end of 1973 (i.e., during the Bretton Woods era), the cumulative drawings of the industrial states constituted 68 per cent of the total drawings fom the IMF. Since that time, this figure has declined to 45 per cent–and it is only as large as that because of tw o particularly large drawings by the UK and Italy in the mid-1970s (of SDR 3,300 million and SDR 2,500 million respectively). See P. Nagy, op. cit. Also Bird, Graham, ‘Financial Flows to Developing Countries: The Role of the International Monetary Fund’, Review of International Studies, 7 (1981), pp. 91–105CrossRefGoogle Scholar; and Bird, Graham and Orme, Timothy, ‘An Analysis of Drawings on the International Monetary Fund by Developing Countries’, World Development, 9 (1981), pp. 563–68CrossRefGoogle Scholar.

18. ‘Financing the Deficits’, The Economist, 12 January 1980Google Scholar.

19. International Monetary Fund, Annual Report of the Executive Board for the Financial Year Ended April 30, 1981, op. cit., Table 1.3, ‘Summary of Members’ Purchases and Repurchases, Financial Years Ended April 30, 1948–81’, p. 121.

20. Under the new arrangements for enlarged access to the resources of the Fund, adopted in 1981, member states making ‘strong adjustment efforts’ can draw up to 150 per cent of their quotas, or 450 per cent over a three-year period. This policy allows a cumulative access of up to 600 per cent of a member's quota (exclusive of drawings from such special accounts within the Fund as the Extended Fund Facility, the Buffer Stock Financing Facility or the Oil Facility). The effect of this change is to provide for an increase of 12½ per cent in borrowing capacity for qualifying states over the pre-1981 arrangements. Ibid. pp. 85–88 and pp. 153–55.

21. International Monetary Fund, Annual Report of the Executive Board for the Financial Year Ended April 30, 1981, op. cit., p. 3. The anticipated demands on the resources of the Fund for 1981 were so great as to lead the IMF to borrow money from Saudi Arabia and from a group of industrial states during the course of that year. Ibid, pp. 91–92.

22. The IMF itself has candidly admitted the existence of this de facto relationship with the private banking community: ‘In providing … financing, the Fund plays a role complementary to that of private international financial institutions by seeking to reach understandings that members will follow macroeconomic policies aiding their balarre of payments adjustment’. International Monetary Fund, Annual Report of the Executive Board for the Year Ended April 30, 1980 (Washington, 1980), p. 70Google Scholar.

23. Since the international economy as a whole possesses no standing mechanism for compelling states to inflate their economies, moral persuasion is the only alternative. A notable instance where moral persuasion was effective was the 1978 economic summit at Bonn, in which West Germany and Japan were persuaded to act as locomotives’ for the benefit of their five weaker partners (Italy, Canada, France the US and the UK). Developing states, however, are seldom if ever in a position to exert such pressure effectively. See generally Corden, Walter Max, ‘Expansion of the World Economy and the Duties of Surplus Countries’, The World Economy, 1 (1978), pp. 121–34CrossRefGoogle Scholar.

24. Zaire's finances have been in such a dismal condition that it has been persuaded to allow an IMF co-ordinating committee to work full time with the Bank of Zaire. In effect, the IMF took control of Zaire's finances. Early in 1980, Zaire failed to qualify for the second tranche of a $150 million stand-by credit; but since then its standing with the Fund has improved. By November 1980 it had drawn on four tranches; and the way appeared clear for a much larger loan of about S 1,000 million from the Fund's Extended Fund Facility. The Economist, 15 November 1980.

In Egypt, the Government's attempt to introduce an austerity programme, as a condition for the receipt of IMF assistance, led to rioting. Since that time, Egypt's relations with the Fund have been less than harmonious. A $730 million credit facility which was negotiated in 1978 collapsed within three months of signing. Then in July 1980, Egypt and the IMF were unable to reach agreement on further assistance. ‘New Minister for the Economy Produces Sweeping Policies’, Financial Times, 23 July 1980, a Survey of Egypt. By the end of 1980 Egypt's balance of payments position had improved to the point that, for the moment, it did not need IMF aid.

Jamaica provides the most spectacular example to date of a developing state at odds with the IMF. The country had borrowed $250 million from the Fund; but negotiations over the drawing of the remaining $225 million broke down in March 1980 when the IMF asked for budgetary cuts which would have made 11,000 government workers unemployed. With the change of government later that year, relations between the country and the Fund improved to the point that, in May 1981 arrangements were made for Jamaica to draw some $650 million from the IMF's Extended Financing Facility over a three year period, plus another $49 million to come from the Compensatory Financing Facility. ‘Jamaica Gets Its Seedcorn’, The Economist, 02 May 1981Google Scholar. On the present economic state of Jamaica generally, see ‘Jamaica: A Special Report’, The Times, 17 October 1981Google Scholar. See also O'Flaherty, J. D., ‘Finding Jamaica's Way’, in Developing Country Debt, Franko, Lawrence G. and Seiber, Marilyn J., (eds.), (New York, 1979), pp. 126–42Google Scholar.

On recent ‘IMF Riots’ in Casablanca, Morocco in June 1981, see ‘Morocco Faces Difficult Choice’, Financial Times, 03 July 1981Google Scholar. See also Cooper, Roger, ‘Country Risk: Morocco Under Stress’, Euromoney, April 1981, pp. 60–71Google Scholar.

On the conditions attached to IMF lending, see generally Dell, Sidney and Lawrence, Roger, The Balance of Payments Adjustment Process in Developing Countries (New York, 1980), pp. 141–46Google Scholar; and Gold, Joseph, ‘Conditionally’, IMF Pamphlet Series, No. 31 (1979)Google Scholar. An article which strongly influenced IMF policy-makers in their approach to problems of conditionality was Polak, J. J., ‘Monetary Analysis of Income Formation and Payments Problems’, Staff Papers, 6 (1957), pp. 1–50CrossRefGoogle Scholar. On the experiences of several developing countries with the IMF, see Payer, Cheryl, The Debt Trap: The IMF and the Third World (London, 1974)Google Scholar; and McCauley, R. N., ‘A Compendium of IMF Troubles: Turkey, Portugal, Peru, Egypt’, in Developing Country Debt, op, cit. pp. 143–81Google Scholar.

See also Kapur, Basant, ‘Alternative Stabilization Policies for Less Developed Economies’, Journal of Political Economy, 84 (1978), pp. 777–95CrossRefGoogle Scholar; and Reichman, T. M. and Stillson, R. T., ‘Experience with Programs of Balance of Payments Adjustment: Stand-by Arrangements in the Higher Tranches, 1963–1972’, Staff Papers, 25 (1978), pp. 293–309Google Scholar.

25. Concerning the preference of developing states generally for fixed exchange rates, see William R. Cline, op. cit. In general, the economics literature favours the developing-state position on this question. Leslie Lipschitz, op. cit. pp. 423–24.

26. Crockett, Andrew, ‘Stabilization Policies in Developing Countries: Some Policy Considerations’, Staff Papers, 28 (1981), pp. 54–79CrossRefGoogle Scholar. Concerning the progress which some developing states have made in the evolution of more complex financial markets, see Lees, Francis A. and Eng, Maximo, International Financial Markets: Development of the Present System and Future Prospects (New York, 1975)Google Scholar.

27. See note 10supra.

28. Black, Stanley W., ‘Exchange Policies for Less Developed Countries in a World of Floating Rates’, op. cit. p. 18Google Scholar. See also Fleming, J. M., ‘Domestic Financial Policies Under Fixed and Under Floating Exchange Rates’, Staff Papers, 9 (1962), pp. 369–80CrossRefGoogle Scholar; Johnson, O. E. G., ‘The Exchange Rate as an Instrument of Policy in a Developing Country’, Staff Papers, 23 (1976), pp. 334–48CrossRefGoogle Scholar; and Money and Monetary Policy in Less Developed Countries: A Survey of Issues and Evidence, Coats, Warren L. and Khatkhate, Deena R. (eds.), (Oxford, 1980)Google Scholar.

29. Between 1947 and the end of 1970, there were over 200 currency devaluations by developing countries. Cooper, Richard, ‘Currency Devaluations in Developing Countries’, Essays in International Finance, No. 86 (1971), p. 3Google Scholar.

30. Many—but not all—monetarist economists are sceptical of the ability of exchange rate movements to have any long-term effect on the real economy. See, for example, Miles, Mark A., Devaluation, the Trade Balance, and the Balance of Payments (New York and Basel, 1978)Google Scholar. Even if one accepts the general truth of such a proposition, however, the fact remains that the short run, during which exchange rate changes can have a real impact, sometimes lasts quite a long time in practice, about two years according to one recent estimate. Driskill, Robert A., ‘Exchange Rate Dynamics: An Empirical Investigation’, Journal of Political Economy, 89 (1981), pp. 357–71CrossRefGoogle Scholar. See also Dornbusch, Rudiger, ‘Real and Monetary Aspects of the Effects of Exchange Rate Changes’, in National Monetary Policies and the International Financial System, Aliber, Robert Z. (ed.), (Chicago, 1974), pp. 64–81Google Scholar. This debate about the effect on domestic economies of exchange rate changes is one aspect of the broader debate over the causes of inflation generally: between the ‘monetarist’ school, which contends that inflation is a monetary phenomenon only; and the ‘structuralist’ school, which holds that inflation is at least sometimes the result of factors in the real economy, such as supply bottlenecks or underdeveloped infrastructure. For a useful, brief summary of this debate, see Andrew Crockett, op. cit. pp. 54–55. See also Wachter, Susan M., Latin American Inflation: The Structuralist-Monetarist Debate (Lexington, Mass., 1976)Google Scholar; and Struthers, John, ‘Inflation in Ghana: (1966–78): A Perspective on the Monetarist vs. Structuralist Debate’, Development & Change, 12 (1981), pp. 177–213CrossRefGoogle Scholar.

31. This phenomenon is known as the ‘J-curve effect’.

32. On the deflationary nature of currency devaluations, see generally Richard Cooper, op. cit. pp.19–20; Dornbusch, Rudiger, ‘Devaluation, Money and Non-traded Goods’, American Economic Review, 63 (1973), pp. 871–80Google Scholar; Krugman, P. and Taylor, L., ‘Contradictory Effects of Devaluation’, Journal of International Economics, 8 (1978), pp. 445–56CrossRefGoogle Scholar; Lysy, Frank J. and Taylor, Lance, ‘Income Distribution Simulations, 1959–71’, in Lance Taylor et. al., Models of, Growth and Distribution for Brazil (New York, 1980), pp. 224–95Google Scholar; and Andrew Crockett, op. cit. pp. 69–70. See also Laker, J. F., ‘Fiscal Proxies for Devaluation: A General Review’, Staff Papers, 28 (1981), pp. 118–43CrossRefGoogle Scholar.

33. Unless producers are unsuccessful, as is sometimes the case, in their attempt to pass the burden of their increased costs on to consumers. Richard Cooper, op. cit. pp. 25–26.

34. For an example of a study of the internal redistributional impact of currency devaluation in a particular country, see Diaz-Alejandro, Carlos F., Exchange-Rate Devaluation in a Semi-Industrialized Country: The Experience of Argentina 1955–1961 (Cambridge, Mass., 1965)Google Scholar, which concluded that devaluations worked systematically in favour of large landowners and to the detriment of the urban poor.

35. Richard Cooper, op. cit. p. 11.

36. See note 28supra.

37. The experience of Argentina is illustrative of this point. After 1976 it adopted a policy of carrying out frequent ‘mini-devaluations’ in an attempt to offset its inflation rate. It failed to devalue fast enough, however, with the result that the Argentine peso was effectively being constantly revalued in real terms. This policy was discontinued in 1981, when the peso was devalued against the US dollar by some 75 per cent.

38. See generally: J. M. Fleming, ‘Domestic Financial Policies Under Fixed and Under Flexible Exchange Rates’, op. cit. Stanley W. Black, ‘Exchange Policies for Less Developed Countries in a World of Floating Rates’, op. cit.; and Leslie Lipschitz, op. cit.

39. Note that an export-oriented development policy does not necessarily entail running balance of payments surpluses. It means that export demand is the source of economic growth and development; but the State may nevertheless have a substantial appetite for imports. Brazil, for example, has a long history of balance of payments deficits.

40. On the Brazilian economy generally, see Baer, W. and Kerstenetsky, I., ‘Import Substitution and Industrialization in Brazil’, American Economic Review, Papers & Proceedings, 54 (1964), pp. 411–25Google Scholar; Baer, Werner, Industrialization and Economic Development in Brazil (Homewood, Ill., 1965)Google Scholar; Rosen, Bernard C., ‘The Achievement Syndrome and Economic Growth in Brazil’, Social Forces, 42 (1964), pp. 341–54CrossRefGoogle Scholar; Leff, Gordon, ‘Export Stagnation and Autarkic Development in Brazil, 1947–1962’, Quarterly Journal of Economics, 81 (1967), pp. 286–301CrossRefGoogle Scholar; Huddle, D. L., ‘Post-war Brazilian Industrialization, Growth Patterns, Inflation and Sources of Stagnation’, in The Shaping of Modern Brazil, Baklanoff, E. N., (ed.), (Baton Rouge, La., 1969), pp. 86–108Google Scholar; Baer, Werner and Maneschi, Andrea, ‘Import Substitution, Stagnation and Structural Change: An Interpretation of the Brazilian Case’, Journal of Developing Areas, 5 (1971), pp. 177–92Google Scholar; Fishlow, Albert, ‘Origins and Consequences of Import Substitution in Brazil’, in International Economics and Development, Marco, Luis D., (ed), (New York, 1971), pp. 311–65Google Scholar; Contemporary Brazil: Issues in Economic and Political Development, Rosenbaum, H. Jon and Tyler, William G., (eds.), (New York, 1972)Google Scholar; Baer, Werner, ‘The Brazilian Boom 1968–1972: An Explanation and Interpretation’, World Development, 1 (1973), pp. 1–15CrossRefGoogle Scholar; Kahil, R., Inflation and Economic Development in Brazil (Oxford, 1973)Google Scholar; Fishlow, A., ‘Some Reflections on Post-1964 Economic Policy’, in Authoritarian Brazil: Origins, Policies, Future, Alfred Stepan, , (ed.), (New Haven 1973)Google Scholar; Syvrud, Donald E., Foundations of Brazilian Economic Growth (Stanford, 1974)Google Scholar; Tyler, William G., Manufactured Export Expansion and Industrialization in Brazil (Tubingen, 1976)Google Scholar; Bonelli, R. and Malan, P.. ‘The Brazilian Economy in the Seventies: Old and New Developments’, World Development, 5 (1977), pp. 19–45Google Scholar; Baer, W. and von Doellinger, C., ‘Determinants of Brazil's Foreign Economic Policy’, in Latin America and the World Economy: A Changing International Order, Grunwald, Joseph, (ed.), (Beverly Hills and London, 1978), pp. 147–61Google Scholar; Wells, John R., ‘Brazil and the Post-1973 Crisis in the International Economy’, in Inflation and Stabilisation in Latin America, Thorp, Rosemary and Whitehead, Laurence (eds.), (London and Basingstoke, 1979), pp. 227–63Google Scholar; Lemgruber, Antonio C., ‘Inflation in Brazil’, in Worldwide Inflation: Theory and Recent Experience, Krause, Lawrence B. and Salant, Walter S., (eds.), (Washington, 1977), pp. 395–448Google Scholar; Hewlett, Sylvia Ann, The Cruel Dilemmas of Development: Twentieth-Century Brazil (New York, 1980)Google Scholar; Weisskopff, R., ‘The Growth and Decline of Import Substitution in Brazil–Revisited’, World Development. 8 (1980) pp. 647–675CrossRefGoogle Scholar; Fishlow, A., ‘Brazilian Development in Long-Term, Perspective’, American Economic Review, Papers & Proceedings, 70 (1980), pp. 102–108Google Scholar; and Foxley, A., ‘Stabilization Policies and Stagflation: The Cases of Brazil and Chile’, World Development, 8 (1980), pp. 887–912CrossRefGoogle Scholar.

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42. Brazil has not publicly stated the criteria which it uses in deciding the timing and magnitude of devaluations, although one study has concluded that ‘it is evident that the method in effect applies a purchasing power parity clause to the domestic price of foreign exchange, and the evolution of domestic and foreign price levels is taken into account in adjusting the exchange rate.’ Ibid. p. 143. Another scholar, however, has concluded that in recent years the rate of devaluation has lagged behind the rate of domestic inflation, so that in 1976 there was an effective appreciation of 3.2 per cent in the value of the cruzeiro. John R. Wells, op. cit. p. 246.

43. See generally Tyler, William G., ‘Exchange Rate Flexibility Under Conditions of Endemic Inflation: A Case Study of the Recent Brazilian Experience’, in Leading Issues in International Economic Policy: Essays in Honor of George N. Halm, Bergsten, C. Fred and Tyler, William G. (eds.), (Lexington, Mass., 1973), pp. 19–49Google Scholar.

44. Smith, D., ‘Deliberate Policy Pushes Brazil's Inflation to 77%’, Financial Times, 08 January 1979Google Scholar.

45. Smith, D., ‘Unexpected Inflation Shocks Brazil’, Financial Times, 10 April 1979Google Scholar.

46. 'Brazil Devalues, Decontrols and Diminishes Indexation’, The Economist, 15 December 1979.

47. In the period 1 January 1981 to 18 May 1981, for instance, there were twelve devaluations of the cruzeiro.

48. John R. Wells, op. cit. p. 231. On the political atmosphere generally in Brazil, see Fiechter, Georges Andre, Brazil Since 1964: Modernization Under a Military Regime: A Study of the Interactions of Politics and Economics in a Contemporary Military Regime (Geneva, 1972)Google Scholar; Brazil in the Sixties, Roett, Riorden, (ed.), (Nashville, 1972)Google Scholar; Quartim, Joao, Dictatorship and Armed Struggle in Brazil (London, 1971)Google Scholar; Authoritarian Brazil op. cit.; and Sylvia Ann Hewlett, op. cit.

49. For an examination, and a vigorous defence, of import-substitution policies, see Ahmad, Jaleel, Import Substitution, Trade and Development (Connecticut, 1978)Google Scholar.

50. For an analysis of the consequences of some of these policies, see Gilbert F. Verbit, op. cit.

51. International Monetary Fund, Annual Report of the Executive Board for the Fiscal Year Ended April 30, 1979 (Washington, 1979), p. 43Google Scholar.

52. Such is no longer the case, since India has substantially modified many of its import-substitution policies in order to qualify for a large loan from the IMF. See ‘IMF Expected to Approve $4 bn Credit for India’, Financial Times, 29 July 1981. It developed that the IMF did approve the loan to India, although the US director abstained in the vote which was taken on the question. ‘IMF Loan Will Give Tremendous Boost to Indian Economy’, Financial Times, 11 November 1981.

53. The IMF sees itself, not surprisingly, in a notably less harsh light in this regard. Because of its awareness of ‘the political and social problems involved’, the Fund notes that it refrains from insisting on an exchange rate change ‘except where it is clear that such a change [is] needed’. International Monetary Fund, Annual Report of the Executive Board for the Financial Year Ended April 30, 1981, op. cit. p. 61. In the case of the 1981 loan to India, for instance, India was not required to devalue its currency.

54. Guideline No. 4 on Conditionality, Decision No. 6056–(79/38), International Monetary Fund, Annual Report of the Executive Board for the Fiscal Year Ended April 30, 1979, op. cit. pp. 136–38.

55. For an excellent discussion of this issue, see Crockett, A. and Goldstein, M., ‘Inflation Under Fixed and Flexible Exchange Rates’, Staff Papers, 23 (1976), pp. 509–44CrossRefGoogle Scholar, which tentatively concludes that a fixed-rate system has slightly less of an inflationary bias. Among those who would agree (in varying degrees) are Yeager, L., ‘Discipline, Inflation, and the Balance of Payments’, in Money, the Market, and the State: Economic Essays in Honor of James Muir Walker, Beadles, Nicholas Aston and Drewry, L. Aubrey, (eds.), (Georgia 1968), pp. 1–34Google Scholar; Laffer, A., ‘Two Arguments for Fixed Exchange Rates’, in The Economics of Common Currencies, Johnson, Harry G. and Swoboda, Alexander K., (eds.), (London, 1973)Google Scholar; Riechel, Klaus-Walter, Economic Effects of Exchange Rate Changes (Lexington, Mass., 1978)Google Scholar; Warner Max Garden, ‘Expansion of the World Economy and the Duties of Surplus Countries’, op. cit. On the other side of the issue is Otmar Emminger, Inflation and the International Monetary System (Basel, 1973). See also Phaup, E. D., ‘Reserve Changes and the Discipline Argument’, Atlantic Economic Journal, 2 (1974), p. 58CrossRefGoogle Scholar; and Witteveen, H. J., ‘Inflation and the International Monetary Situation’, American Economic Review, Papers & Proceedings, 65 (1973), pp. 108–14Google Scholar.

Among certain, though by no means all, monetarist economists there is sentiment for a return to the gold standard, a view which received support from President Reagan in the course of his 1980 campaign. The gold standard proposal of Arthur Laffer has as its major goal the achievement of price stability by means of a unilateral commitment on the part of the US to convert dollars into gold at a fixed price on demand. An international agreement to re-monetize gold is not part of the proposal. James, Lewis, ‘Reagan's Economic Guru’, Euromoney, September 1980, pp. 31–34Google Scholar. At the present time, the Federal Commission on Gold in the US is investigating the role which gold might play in the future of US monetary policy. The Commission began holding public hearings in September 1981.

56. Johnson, H. G., ‘The Denigration of Floating Exchange Rates’, Euromoney, 09 1975, pp. 48–50Google Scholar.

57. International Monetary Fund, Annual Report of the Executive Board for the Fiscal Year Ended 30 April 1981, op. cit. p. 103. A recent innovation at the IMF is the establishment of a special facility for the assistance of member states which suffer because of fluctuations in th e prices of cereal imports. ‘Compensatory Financing of Fluctuations in the Cost of Cereal Imports’, Decision No. 6860–(81/81) 5 Ibid. pp. 169–71.

58. For some suggestions (of a fairly adventurous nature), see Mehmet, O., ‘A n International Development Levy on Multinational Corporations’, International Interactions, 7 (1980), pp. 101–22CrossRefGoogle Scholar; Bird, Graham, ‘Reserve Currency Consolidation, Gold Policy and Financial Flows to Developing Countries: Mechanisms for an Aid-augmented Substitution Account’, World Development, 9 (1981), pp. 609–20CrossRefGoogle Scholar; and Brodsky, D. A. and Sampson, G. P., ‘Implications of the Effective Revaluation of Reserve Asset Gold: The Case for a Gold Account for Development’, World Development, 9 (1981), pp. 589–608CrossRefGoogle Scholar.

59. Actually, the central idea behind the Keynes proposal was that payments adjustments would be settled by a sort of overdraft known as ‘bancor’. The clearing union would not hold a pile of real currencies as the IMF does; rather, it would keep track of who had net overdrafts and who had the corresponding credits. Logically enough, it was proposed that states which had overdrafts would pay interest on them, as they were effectively loans. One of the innovative parts of the plan—and the one whose revival in a slightly altered form is being proposed here—was that the surplus states should also pay interest on their credits, to discourage the running of surpluses. Such a system amounts to the imposition of a tax on surpluses, though the terminology differs. For a description of the Keynes proposal, see George N. Halm, op. cit.; and The Collected Writings of J. M. Keynes: Activities 1940–44; Postwar World: The Clearing Union, 25, Moggridge, D., (ed.) (London, 1980)Google Scholar. The underlying rationale of the proposed system, of course, was to give all states in the international community, surplus and deficit alike, an incentive to keep world trade in approximate equilibrium. Ibid. p. 96.

60. North-South: A programme for Survival, The Report of the Independent Commission on International Development Issues (London, 1980), pp. 244–56Google Scholar. See also Steinberg, Eleanor B. and Yager, Joseph A., New Means of Financing International Needs (Washington, 1978)Google Scholar.