Bolivia Puts a Match To Inflationary Relics
Nine-hundred tons of pesos will be torched
LA PAZ, BOLIVIA
BOLIVIA is getting set to burn its past. Three specially-designed ovens at a state tin smelting plant will, in coming weeks, start incinerating 900 tons of old currency and cashiers' checks. They are relics of the chaotic hyperinflationary years from 1982-1985, when inflation reached a cumulative 24,000 percent, the seventh highest recorded in the world.
Such hyperinflation can prove costly in unexpected ways, long after the problem has apparently been tamed. Three of Bolivia's four-figure inflationary neighbors, Argentina, Brazil and Peru, also face the hidden costs of hyperinflation.
Among those costs: The Central Bank will have to find $130,000 to cover the costs of the whole operation; the ovens will be in continuous operation in eight-hour shifts for 34 days; 40 employees of the Central Bank will be required to oversee the operation; 30-ton rail cars will transport 15,000 60-kilo bags of currency to the state smelting plant at Vinto in Oruro state from all Bolivia's major cities; and a large hole will be dug near the plant to bury the ashes.
Even before the operation started, the 900 tons of notes had to be stored for five years in a series of huge warehouses belonging to the Central Bank, the State Bank and private contractors. Bankers complained that the bulk of the bags impeded the proper functioning of the banks.
A drastic package of free market measures brought down Bolivia's inflation from 8,000 percent in 1985 to 66 percent the following year. It has remained under 22 percent ever since. But most Bolivians are also happy to see the symbolic end to the kind of weekly paycheck they used to get - a paper bag crammed full of notes.
``As soon as we received our bundle of notes, we would immediately rush to the nearest exchange house and turn them into dollars,'' recalls Alberto Machicao, the Central Bank official in charge of the incineration. The price of a roll of bread could go up 10 percent in a matter of hours, not days.''
In the period of 1984 to 1985, special cashiers' checks and notes had to be hastily imported from Argentina, Brazil, and West Germany.
The cost was as least $15 million for the cashiers' checks alone, making them one of the country's largest import items of that time.
The cashiers' checks were introduced as the only way to avoid paying wages or bills with vast bundles of notes. The last such check to be introduced was worth no less than 10 million old pesos.
At the end of 1986 the former government of Dr. Victor Paz Estenssoro knocked six zeros off the old peso note and introduced the new boliviano. Although the boliviano is now one of Latin America's most stable currencies, the tarnish left by the years of hyperinflation still remains.
Eighty-six percent of all bank deposits in Bolivia are in US dollars and not bolivianos. ``Because of the past, depositors still prefer dollar deposits which offer a return of 14 percent, rather than boliviano deposits at 32 percent,'' laments Mr. Machicao, the Central Bank official.
Cynics argue that the best way of recouping some of the cost of the incineration would be to offer the same service to Bolivia's neighbors, who were also afflicted with hyperinflation. Representatives of the Central Bank of Peru, where inflation reached nearly 3,000 percent last year, have already made discreet enquiries to their Bolivian counterparts.
For government officials, the priority is not recovering the cost of the incineration, but avoiding a repeat of the past. They want no return to the era when a friend could whisper in their ear, ``Hey, lend me a million.''