The End of the Bolivian Hyperinflation

Bolivia experienced between April 1984 and August 1985 the rather uncommon disgrace of hyperinflation.1 In those seventeen months, prices increased by a factor of 625. According to Sachs (1986), the Bolivian hyperinflation can be ranked as the seventh highest inflation in the world in this century and the only one not following a world war or a civil war. Bolivia exhibits the doubtful record of having had the only case of true hyperinflation in Latin American history. The hyperinflation was abruptly stopped in late August 1985, with a shock orthodox program, supported by tight monetary and fiscal policies. The success at stabilization can be gauged with the 10.6 percent inflation rate for 1987 (December to December). The results for the first semester of 1988 are less brilliant; nonetheless, inflation seems to be firmly under control.

This papers attempts to answer the following questions: why did hyperinflation appear? was Bolivia more prone to suffer high inflation, after external shocks, than other countries in Latin America, because of its low level of economic development? We should not forget that Bolivia is the second poorest country in Latin America, with a per capita income slightly over U$ 600. Why the Bolivian government allowed inflation to last for such a relatively long period? which features difference the Bolivian stabilization program from the heterodox stabilization plans in contiguous Argentina and Brazil, that were attempted almost at the same time? what were the costs of stabilization in terms of output and employment, and income distribution? what explains the success of the Bolivian stabilization program?