ECON-2220 Chapter Notes - Chapter 5: Hugo Banzer, History Of Latin America, Seigniorage
15 May 2018
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Study guide: ‘The Bolivian Hyperinflation and Stabilization’ Jeffrey Sachs (1987)
1. Discuss the inflation in Bolivia during 1984 and 1985. Provide relevant statistics to indicate
the intensity of the problem.
● Most rapid in Latin American history
● One of the highest in world history
● From August 1984 to August 1985, prices rose 20,000 percent
○ From May 1995 to August 1995, inflation surged to an annualized rate of 60,000
percent
● Was ended abruptly when a new government took power in August 1985
● Only case in 35 years of a true hyperinflation (price increases exceeding 50% per month)
● Only case that did not arise as the result of a war or revolution
2. Describe the economic environment during the Banzer regime (1971-1978) and also describe
the preceding factors promoting Bolivia’s hyperinflation.
● Several years of relative stability and prosperity under the military regime
● BOLIVIA BORROWED HEAVILY FROM FOREIGN BANKS
● FOREIGN DIRECT INVESTMENT (looked really good but there was a ton of
borrowing)
● Prosperity largely based in positive terms of trade in the 70’s, heavy foreign borrowing
from international banks, and a political regime supporting foreign direct investment in
the country
● When General Banzer left, there was political competition for power (left against right,
civil against military)
● Worsening economic environment after 1980: high interest rates (from high debt), falling
commodities prices (tin prices falling), tight international credit (Bolivia couldn’t borrow
any more money to fix immediate woes)
● By the end of 1980, Bolivian access to the private international capital markets had dried
up
● 1980: Siles elected, military and elite prevented him from taking office
○ “Bewildering series of coups, electoral stalemates, interim government”
● World bank and IMF cease lending
● Pent up social and economic demands
● Main export was tin, whose terms of trade were falling dramatically
○ Low prices and low demand
○ Tin was nationalized, so governments were losing revenue directly
● New leftist/socialist government, Siles government, took power in 1982 after a series of
military regimes despite the fact that he was democratically elected
○ Eventually put into power because of U.S. intervention and pressure
● By the time Siles took power, inflation was 300% and GDP had fallen by 6.6%
○ No international credit
○ Economic depression
● Basically, political chaos
3. What were the three fundamental aspects of three rise of hyperinflation?
1. Cutoff in international lending and increase in international interest rates in the early ‘80s
a. Government increases inflation tax
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Document Summary
Study guide: the bolivian hyperinflation and stabilization" jeffrey sachs (1987: discuss the inflation in bolivia during 1984 and 1985. Provide relevant statistics to indicate the intensity of the problem. One of the highest in world history. From august 1984 to august 1985, prices rose 20,000 percent. From may 1995 to august 1995, inflation surged to an annualized rate of 60,000 percent. Was ended abruptly when a new government took power in august 1985. Only case in 35 years of a true hyperinflation (price increases exceeding 50% per month) Only case that did not arise as the result of a war or revolution: describe the economic environment during the banzer regime (1971-1978) and also describe the preceding factors promoting bolivia"s hyperinflation. Several years of relative stability and prosperity under the military regime. Foreign direct investment (looked really good but there was a ton of borrowing)
