ABSTRACT
Successful exchange rate based stabilization programs in Europe, Israel and elsewhere have led many economists and policymakers to advocate the use of pegged exchange rates as an integral part of stabilization programs in the emerging market economies. This chapter discusses the ambiguous concept of "success" in stabilization. It examines the role of the exchange rate regime and other policies in stabilization programs in Argentina, Bolivia, Brazil, Chile, Ecuador, Mexico, Peru and Uruguay. Even allowing for considerable ambiguity in classifications, both of stabilization success and of exchange rate regimes, the Latin American experience amply demonstrates that use of the exchange rate as a nominal anchor is neither a necessary nor a sufficient condition for successful stabilization policy. The Latin American experience shows that fixed exchange rates are more likely to give way in the face of continued inflation than for inflation to be constrained by a fixed rate.
