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First the central bank burns its foreign reserves in a futile attempt at protecting the currency, providing a narrow window of opportunity for well-connected people to move their assets into hard currency (the downward exchange rate pressure from this is compensated by some of the foreign-reserve burning). Then massive devaluation happens, and then the IMF comes in.

The devaluation is not part of the IMF package, but it does take place.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Thu May 6th, 2010 at 11:37:40 AM EST
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In Russia, at least as Stiglitz tells the story, the IMF came in before the devaluation and used dollar-denominated loans to prop up the overvalued currency, thereby extending the window of opportunity for asset stripping.

It boggles the mind how anybody at the IMF could possibly have though that using borrowed dollars to prop up the exchange rate could even be within shouting distance of sanity, let alone a good idea.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 6th, 2010 at 11:50:47 AM EST
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