Staff Papers
Published Date: 01 September 2005

Macroeconomic Stability in Developing Countries: How Much is Enough?

MAS Staff Paper No. 40, September 2005 -  By Peter Montiel and Luis Serven


Over the 1990s macroeconomic policies improved in a majority of developing countries, but the growth dividend from such improvement fell short of expectations, and a policy agenda focused on stability turned out to be associated with a multiplicity of financial crises.  This paper takes a retrospective look at the contents and implementation of the macroeconomic reform agenda of the 1990s.  It reviews the progress achieved with fiscal, monetary and exchange rate policies across the developing world, and the effectiveness of the changing policy framework in promoting stability and growth. The main lesson is that slow growth and frequent crises resulted, more often than not, from shortcomings in the reform agenda of the 1990s.  These shortcomings essentially concern the depth and breadth of the macro reform agenda, its attention to macro vulnerabilities, and the complementary reforms outside the macroeconomic sphere.