engineering exports in india

Zimbabwe economy
1. If the fixed exchange rate regime were eliminated, what would happen to the size of Zimbabwe's international debts in terms of Zimbabwean dollars? Would it increase or decrease?
2. The central bank has recently declared inflation illegal. How do price controls affect domestic markets like those for corn, wheat, electricity ,and labour?
3. This analysis assumes that Zimbabwe's reduction in real GDP is due to domestic policies such as unsustainable fiscal deficits and poor private property rights. How might hyperinflation directly contribute to higher unemployment?

Answers

1. If the fixed exchange rate regime is eliminated then the currency value would immediately fall to represent its true value. The total debt in terms of US $ would remain the same but in terms of Zimbabwean dollars it would increase manifold. for eg . suppose the government of Zimbabwe has officially fixed the exchange rate at   1US $ = 20,000 ZWD. But looking at the condition of the economy, in the black market or in the non-official market one dollar would be able to buy much more than that. Thus the non-official market is a much better representative of the actual value of the currency of Zimbabwe. Right now the value of the ZWD has been artificially maintained higher. When allowed to float freely it would depreciate and thus the size of debt would increase enormously.
According to the J-curve also a nation’s trade balance will worsen after depreciation before improving later on. This is due to increase in the prices of imports faster than export prices, with not much change in quantities initially. Its only at the later stages that the export prices catch up with the import prices thus halting and then reversing the trend altogether. Thus we see that according to the reasons given above the debt burden of Zimbabwe would definitely increase.
However this may not solve the balance of payments crisis. As what had happened in case of UK it may not automatically solve...