reduced the supply of foreign exchange through interventions in
the currency market, particularly during the massive capital inflows
of 2006 and 2007, adopted a coherent fiscal policy, and in a few
cases, introduced capital controls. The clearest example of this
policy can be seen in Argentina, where a competitive exchange
rate w a s a cornerstone of macroeconomic policy. There is
evidence that such policy shifted labor towards t h e labor-intensive
traded sector (mainly manufacturing) with a strong equalizing
effect (Damill 2004, cited in World Bank 2005).
In 2006 and 2007, this policy approach came under pressure owing
to large increases in export prices, capital inflows and remittances,
and several countries – both commodity exporters, and particularly
non-commodity exporters - experienced a mild-to-moderate real
appreciation (Figure 6). Indeed, the large current and capital
account surpluses realized in most of South America in 2006 and
2007 led to an appreciation of 4.8% o f the extra-regional real
exchange rate for the region as a whole. Stronger effects were
felt in Colombia, Brazil and Venezuela (Figure 6, and CEPAL
2007). Only Argentina, Bolivia (till 2006) and Panama experienced a
modest real depreciation, while in other countries there were no
changes (Figure 6). It must be noted however, that without a huge
accumulation of reserves and parallel sterilization efforts, several
countries would have shown stronger symptoms of Dutch Disease
and accelerating inflation in the non-tradable sector which would
have generated adverse distributive impacts (Taylor 2000).