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Economic Problems 2.1.2. Currency Devaluation Currency devaluation is one of the most frequent problems that developing countries have to face when considering growth into international trade. 'An upward shift in the supply of foreign exchange due to rising capital inflows tends to lead not to real exchange rate devaluation but to appreciation, which offsets liberalization's incentives for traded goods production by reducing profits from exports and making imports cheaper.'(Taylor, 2000, p.43) Developing countries trying to be competitive and to present a good setting for trade and investment, sometimes tend to overvaluate their currency, this is the first stage of currency devaluation. If they do not become competitive enough to raise the exports to a higher level than imports, they would need to establish currency devaluation measures in order to pay their international debt obligations. A current example of a country that suffers this problem is Argentina. In 1991 the government establish a new...

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