Does Devaluation Make Sense in the Least Developed Countries?

The focus of this study is on the short-to-medium-term effects of devalution in the least developed countries where a large part of the population barely survives on a subsistence wage. A general macroeconomic framwork for devaluation analysis in LDCs is developed. Empirical evidence is presented to demonstrate that devaluation can be an efficient means of reducing current account deficits in the least developed countries, provided that it is accompanied by domestic monetary restraint as well as by an infusion of foreign concessional finance, to avert or at least reduce the detrimental side effects on living standards that would otherwise occur during the period of adjustment to the new exchange rate.