Exchange rate policy and economic reform in Ethiopia

It describes the extent of foreign exchange misalignment in Ethiopia and its impact on the foreign exchange rate and the premium obtained through commodity smuggling in the country. Between 1974 and 1991, there were various forms of exchange and trade controls, which resulted in an increase in premiums, smuggling, and other macroeconomic imbalances. In 1991, an economic reform program was introduced that included a 59% devaluation. The effect of the devaluation on various macroeconomic indicators suggests that the exchange rate reform policy was able to produce the desired results. The major conclusion of this study is that devaluation and the corresponding increase in the real exchange rate increased the supply and export of Ethiopia"s principal commodity (coffee) through the official market. Includes references. (Author abstract)