Establishing Credibility: The Role of Foreign Advisors / Sebastian Edwards.

Format:

Book

Author/Creator:

Edwards, Sebastian.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11429.

NBER working paper series no. w11429

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

In this paper I analyze the role of foreign advisors in stabilization programs. I discuss from an analytical perspective why foreigners may help a developing country's government put in place a successful stabilization program. This framework is used to analyze Chile's experience with anti-inflationary policies in the mid 1950s. In 1955-58 Chile implemented a stabilization package with the advice of the U.S. consulting firm of Klein-Saks. The Klein-Saks program took place in a period of acute political confrontation. After what was considered to be an initial success -- inflation declined from 85% in 1955 to 17% in 1957 -- the program failed to achieve durable price stability. I argue that the foreign advisors of the Klein-Saks Mission gave initial credibility to the stabilization program launched in 1955. But providing initial credibility was not enough to ensure success. Congress failed to act decisively on the fiscal front. Consequently the fiscal imbalances that had plagued Chile for a long time were reduced, but not eliminated. I present empirical results on the evolution of inflation, exchange rates and interest rates that support my historical analysis.

Notes:

Print version record

June 2005.