Where inflation runs at 50,000 per cent

Press, 1 July 1985, Page 20

Where inflation runs at 50,000 per cent

From

“The Economist,”

London

Bolivians are survivors. They have to be: the country suffers from the world’s highest inflation rate (possibly as much as 50,000 per cent this year), rising unemployment and a 35 per cent drop in gross domestic product per head over four years in what was already South America’s poorest country. Keeping life going in

these bizarre conditions is testing Bolivian initiative.

Wealthier Bolivians, at least, seem to be doing all right: rushhour traffic jams in La Paz are worse than ever. Many make their money through currency speculation, which is booming.

Four years ago there were 25 Bolivian pesos to the United States

dollar. Today, dollars can be bought on the street at a rate of around 300,000 pesos. Within a month, the price of the dollar is likely to have doubled. Speculation has played a big part in this depreciation. The currency business explains why so many tourist agencies are opening up just when the tourist industry is at its lowest point in years: they have access to dollars. It has also helped to keep the banks going. Depositors have all but disappeared: businessmen put their money in goods — for instance, barrels of beer and crates of whisky or singani, a local firewater — rather than in banks. Survival in business is a matter of dodging or ignoring the regulations published by a Government that nobody heeds. The country’s main export, cocaine, is illegal. Even exporters of legal goods smuggle them through one of Bolivia’s five neighbours and then pocket the dollars. Much of Bolivia’s fuel production is smuggled to Brazil, where prices are far higher. Another neighbour, Peru, has over the last two years emerged as a tin exporter, even though it has no tin mines.

Bolivian exporters ignore Government decrees which say that they must cash in their dollars at the’ central bank at the official exchange rate of 75,000 pesos to the dollar.

The impact of inflation and recession is cushioned by Bolivia’s still largely peasant economy. Thanks to land reform in the 19505, most rural inhabitants have their own plots. Whatever happens in the cities, the majority can still feed itself, just. Bolivia’s catastrophe has produced an unusual spectacle for any developing country — people migrating from the towns to the countryside. Copyright, “The Economist.”