ABSTRACT
This chapter examines the type of policy advice that might flow from the critiques and reservations. It explores the possible structural, distributional and political implications of implementing orthodox stabilization packages. The wide variety of policies available to governments to deal with instability can be categorized under four broad headings: demand restraint policies using monetary or fiscal instruments; exchange rate and other major relative price adjustments; direct controls; and liberalization measures. Devaluation may reduce domestic demand by increasing the local currency cost of foreign debt servicing and, theoretically, by raising government recurrent revenues by more than it expands government recurrent spending. Political opposition was contained only by harsh repression of workers' movements and by curtailing the democratic freedoms of society at large. The narrowness of the domestic market for many of the goods produced under the strategy leads to small-scale production and excess capacity.
