Policies to move ffrom stabilization to grown
1990
Dornbusch, R.
Although some discussions of stabilization see growth as more or less an assured product of appropriate stabilization policies, this paper argues that there is no guarantee that stabilization will lead to growth; it may result in stagnation. The paper discusses the essentials of stabilization, including inflation targets, fiscal policy, monetary policy, exchange rates, and incomes policy, and suggests that two areas of structural reform regulation, including trade reform, and reform of the financial sector -can play a central role in the long- run success of a stabilization effort. The paper concludes that countries that have experienced protracted high inflation, financial instability, and payments crises probably will have a difficult and protracted transition to growth, and that external resources will be necessary as a continuing feature of the transition. Sustained external support in the form of long-term loans, heavily conditioned on the tangibility and credibility of domestic progress in adjustment, will help provide a bridge by which flight capital may return and foreign direct investment may be encouraged to take advantage of fresh opportunities
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