The decision to remove controls on the exchange rate had been expected to lead to a much higher foreign-exchange price, to encourage exports, and to permit import liberalization without a surging external deficit. But when the rate was set free, the price of dollars went down instead of going up. That initial effect could be explained by the tight restraints imposed on liquidity, which drove firms and individuals who held dollar balances to convert them to domestic currency in order to keep operating. This movement should presumably have gone into reverse when holdings of dollars ran out, but fully eighteen months later no reversal had occurred. Dollars remained too cheap to make exports profitable and too cheap for many producers to compete against imports for several reasons, including the continuing influx of dollars from the drug trade into street markets and then into the banking system. A second reason has involved the continuing low level of domestic income and production, and corresponding restraint of demand for imports as compared with what they would be in an expanding economy. But perhaps the most fundamental reasons have been the continuing squeeze on liquidity in terms of domestic currency and the resulting high rates of interest for borrowing domestic currency, which strongly favor borrowing dollars instead or repatriating them from abroad. All this means that the economy has had no foreign-exchange problem, but also that incentives to produce for export have been held down severely, when both near-term recovery and longer-term growth badly need the stimulus of rising exports.