Reply to Classmate 3:
Sharing an insight to my classmate’s reference that the nation faced failing foreign currency loans post the 1981 period, important to note, during 1980 and 1981, the nation was receiving good amount of net foreign loans that amounted to 6.2% and 3.1% of GNP, respectively during the years. However, beginning with 1982, the net new lending declined significantly and turned negative. As a result, net resource transfer that accounted for 3.1% as a percentage of GNP during 1981, plummeted to -3.4% in 1982 and -6.9% in 1983, thus infusing the early stages of hyperinflation in the country.
In addition, The effects of hyperinflation were further fueled with central bank resorting to printing more currency notes, the process being known as Seignorage, which was being used by the government to finance its remaining domestic expenditure. The graph below shows how the process of Seignorage was being used rapidly by the nation’s central bank that ultimately fueled the hyperinflation:
Reply to Classmate 1:
Supporting the view offered by my classmate that at the time of ongoing hyperinflation in the country, there were many sections of the society that were being largely benefited from the whole situation. In addition to the black marketers of foreign exchange as discussed by my classmate, even the commercial banks and politically-connected individuals were making their fortunes and would have hardly wanted the situation to end. For Instance, Central Bank were taking deposits at zero-percent interest but were lending at high interest rates. Similarly, government were extended loans to powerful and politically linked landowners at marginal rate of interest. Furthermore, the price regulation on public sector goods also induced opportunities for smugglers to benefit from the whole situation. Hence, it was not only the foreign exchange dealers, but also other sections that were being largely benefited and would have wanted hyperinflation to continue.
Works Cited
Morales, J. D. (1987). Bolivia Economic Crisis. Developing Country Debt and the World Economy (p. 73). University of Chicaog Press.
Morales, J. D. (1987). Bolivia's Economic Crisis. Developing Country Debt and the World Economy (p. 71). University of Chicago Press.
