Yemen, People’s Democratic Republic of

Yemen, People’s Democratic Republic of, (South Yemen) fixed its exchange rate to the USD in the context o development planning and widespread controls, with fiscal discipline plus foreign aid and remittances enabling the rate to be  maintained throughout, though with growing difficulty.

Years	Targets and attainment	Classification
1974-1989	currency fixed to USD with spreads around 2%, but no autonomous forex market; central bank set up 1972 in place of Currency Authority with development role and powers (unused)  to set interest rate ceilings, one state-owned commercial bank (after 1969-70 nationalisations and consolidation), both under single Banking Board, credit mostly directed; development planning rather than central planning, intensive price, import and exchange controls; current account deficits covered largely by large foreign aid and remittances; fiscal policies involve some discipline (high tax revenues, wage restraint) but also development efforts, with varying domestic budget deficits feeding into monetary expansion; 1982 severe flooding, 1983-5 drought; from mid-1980s worsening fiscal and monetary control, poor or negative growth; 1986 short but damaging civil war, followed by new more pragmatic leadership; authorities resist IMF pressure for devaluation; rise in excess liquidity; direct import controls tightened; oil discovered 1987 in area on border with Yemen Arab Republic, joint exploration company set up, some output from 1988; late 1989 draft unity constitution accepted, May 1990 unification of Yemen Arab Republic and People’s Democratic Republic of Yemen in Republic of Yemen; early 1990 ‘approved’ market for YAR rial and other currencies, used for imports from YAR as well as travellers’ exchanges, on which PDRY dinar depreciates; statistical database remains poor	augmented exchange rate fix AERF

Selected IMF references: RED 1974 pp13, 25-7, 39-40; SR 1974 p10; RED 1975 pp13, 26, 40; RED 1976 pp1-2, 19, 34-8; RED 1977 pp34-5; RED 1978 pp30-1; SR 1978 pp1-7; RED 1981 pp30-2; SR 1982 p2; RED 1985 pp31-6, 45; SR 1986 pp4, 14; RED 1988 pp31-2, 46; RED 1989 pp14, 28-30; SR 1989 pp2-4; RED 1990 pp1-2, 43; SR 1990 pp1-5, 13, 25.