This chart explains why government policies fail… even if the "intention to reform" exists

This simple diagram is called in economics
The Swan Diagram(
But its danger is that it summarizes all the crises of developing countries on one page.

The horizontal axis: Domestic spending
The vertical axis: Real exchange rate

And the two intersecting lines represent:
• Internal balance )IB(: Inflation versus unemployment
• External balance )EB(: Trade deficit or surplus

Now, let's look at the four regions 👇

First region )at the top of the diagram(:
Unemployment + Trade deficit
👉 A stagnant economy… draining foreign currency
👉 The most dangerous part: decision-makers increase spending "to stimulate the economy," worsening the deficit.

Second region )on the right of the diagram(:
Inflation + Trade deficit
👉 The classic scenario for most of our countries
👉 Prices rise, currency weakens, and imports increase without production
👉 Any monetary injection here = disaster.

Third region )at the bottom of the diagram(:
Inflation + Trade surplus
👉 An economy overheating
👉 Export profits… but citizens suffocate under rising prices.

Fourth region )on the left of the diagram(:
Unemployment + Trade surplus
👉 Missed opportunities
👉 An economy capable of exporting but not creating enough jobs.

The conclusion that politicians dislike:
You cannot fix:
• Inflation alone
• Or unemployment alone
• Or the exchange rate alone

With one tool.

Fiscal policy alone fails.
Monetary policy alone fails.
Fixing the exchange rate alone fails.

The always effective solution is a smart mix of policies, moving along both axes simultaneously.

Many countries spend years in the second region
Then wonder:

Why don’t our plans succeed?

Because the map was in front of you…
But you didn’t look at it.

If you find this analysis helpful, share it
Because understanding the crisis is the first step to overcoming it.