Inflation Stabilization in Bolivia

Bolivia experienced between the first quarter of 1982 and the fourth quarter of 1985, the highest inflation in the history of the Latin American republics. High inflation, but not at hyper rates had been present since the early months of 1982. Hyperinflation, if one uses Cagan’s (1959) criterion, started approximately in April 1984 and ended in the first days of September 1985. In the seventeen months of hyperinflation, prices increased by a factor of 623 and the average monthly inflation rate was 46 percent. Sachs (1986) ranks the Bolivian hyperinflation as the seventh in the 20th century. The stabilization program initiated on August 29, 1985 has put a dramatic end to the plight: the March 1986 to March 1987 (annual) inflation rate was 21 percent or equivalently an average monthly rate of 1.6 percent. Inflation carne to an end in two moments after the program began: in the first moment, the growth rate of prices fell rapidly to the point of becoming negative, but was followed by a strong upsurge in inflation three months after; this called for additional measures that only then, in a second moment, have effectively stopped the process.