Question

Many large developing countries with large dollar-denominated external liabilities experienced large depreciations of their currencies between 1990 and 2003. What effects, if any, did these depreciations have on these countries' external wealth and their GDPs?

Answer 1

If the developing country's home currency would depreciate against dollar and if the developing country has large dollar-denominated external liabilities, then this would lead the developing county's decrease in external wealth. The developing country is poorer now as compared with the other countries. It owes more because its home currency depreciated. Its GDP would decrease, since now, the value of its imports would increase.