Page 79 - The Economist Asia January 2018

The Economist January 27th 2018
Hyperinflation in Venezuela Finance and economics 63
Bolívar blues

CARACAS
As inflation soars, the currencyslides
VEN a modest rate ofinflation com- the mechanic will checkthe DolarToday
Epounds overtime. This is why your exchange rate before presentingthe bill.
tipsy grandfathermight wistfully recall Imported goods, such as tyres, have a
how little a pint ofbeercost in his heyday. reference dollarprice. But a lot of local
In Venezuela, where prices are rising at a prices do not keep up with the collapsing
four-figure annual rate, the good old days value ofmoney. Amonthly mobile-
were last month. The defence minister, phone tariffis 38,000 bolívars, or15 cents;
VladimirPadrino López, on January19th a haircut is 25 cents. Wages tend to lag
urged business leaders to pegbackprices behind prices, in large part because it is
to theirlevels ofDecember15th, when so hard to keep up with them. The
presumably everythingwas just fine. monthly minimum wage has just been
The spendingpowerofthe bolívar, raised forthe umpteenth time, to around
Venezuela’s currency, had collapsed long 800,000 bolívars. That is less than $4 at
before then. The Economist’s BigMac the current black-market exchange rate. If
Poverty and migration Indexgives a rough guide to how fast it wages were perfectly indexed, it would
On their bikes has fallen. The indexis based on the idea serve only to speed up inflation. But their
slow and uneven adjustment means the
ofpurchasing-powerparity (PPP), which
says a fair-value exchange rate is one that pain ofhyperinflation is shared haphaz-
leaves consumerprices the same in differ- ardly. As Juan Perón ofArgentina suppos-
ent countries. In ourindex, the price ofa edly said, ifprices take the lift, wages
BigMac is a proxy forall goods. In Cara- cannot take the stairs.
DHAKA cas, this week, a BigMac cost145,000
One wayto alleviate rural povertyis to bolívars; in American cities, it cost an
nudge people into cities
average of$5.28. The ratio ofthose prices Good golly, Miss Bolí!
ESIDES shoes and shrimp, Bangladesh gives a PPP exchange rate of27,500 bolí- Venezuelan bolívar to the $
B exports poverty cures. Microfinance vars. Two years ago, the rate was 27 bolí- Implied PPP* conversion rate, inverted log scale
was developed there in the late 1970s be- vars. By this yardstick, the currency has 1
fore spreading. In 2002 BRAC, a charity, lost 99.9% ofits value in almost no time.
started giving assets such as cows (and In fact the BigMac gauge probably 10
trainingin howto manage them) to desper- understates the general rise in prices and 100
ately poor women. That approach has the slide in the currency. DolarToday, a
spread, too. The latest poverty remedy to US-based website that publishes real- 1,000
emerge from Bangladesh is different: it tar- time quotes, puts the black-market ex- 10,000
gets men, and rather than trying to make change rate at around 260,000 bolívars to
people more productive in their villages, it the dollar, and falling. This rate has be- 100,000
encourages them to move. come one ofthe few reliable yardsticks 2010 12 14 16 18
In Rangpur, a northern district, agricul- against which to pegprices in Venezuela. Sources: McDonald’s; *Purchasing-power parity, based
tural labourers endure an annual hunger Have yourtyre replaced in Caracas, and The Economist on The Economist’s Big Mac index
in the autumn, known as monga. The rice
crop has been planted but is not ready to
harvest, so work is scarce. Jobs abound in migrant. That suggests a snowball effect: if from rural work than households in the
the cities, but poor farmers are loth to use lots migrate, the hesitant may follow. control villages. Many men shuttle be-
theirdwindlingsavings on a bus ticket. It is Household income rises, largely be- tween country and town, working where
a good example ofa poverty trap. cause men are able to work more hours they can. Researchers are now trying to
So, forthe pastten years, researchers led each day. Sree Jotin, an agricultural la- work out whether urban economies have
by Mushfiq Mobarak, an economist at Yale bourer with a small plot of his own in been affected. Fully140,000 villagers were
University, have tried offering cash to poor Rangpur, reckons that he earns about 250 helped to move in 2017. Such a large wave
householdsso longassomebodymovesto taka a day in the fields. In Dhaka, where he could have depressed pay for unskilled
acityto lookforwork. The effectsof thisin- worked as a cycle-rickshaw driver last No- workin the cities.
tervention have been measured through vember and December, he pulls in about Could the same approach work else-
randomised controlled trials, including a 700. He pays 100 taka to rent a rickshaw where? Mr Mobarak points out that Ban-
large one, covering 133 villages, which be- and 110 for food, but makes far more than gladesh is unusually homogeneous for
gan in 2014. They turn out to be strong. he could at home (he sleeps in a corner of such a populouscountry. Asa result, villag-
Predictably, money encourages move- the garage, so has no housing costs). ers can move around easily. It has several
ment. In villages where no cash was of- Though he believes Dhaka’s filthy airis da- competent charities, including one called
fered, 34% of poor households sent a mi- maginghis health, he is glad he moved. RDRS, which handed out the money in
grant to a city during monga. In those Village life is profoundly affected, and Rangpur. The government does little to
where a few households were offered not just because more men are sending curtail urban migration. Other countries
grants of 1,000 taka (about $12), 59% of money home. With so many workers ab- where Mr Mobarakis trying to launch sim-
them sent someone to a city. But in villages sent, agricultural wages rise. Oddly, house- ilarprogrammesmayprove tougher. Atrial
where most poorhouseholds were offered holds that are encouraged to send some- has begun in West Timor, in Indonesia.
cash, fully 74% of those approached sent a body to a city end up earningslightly more Afterthat, all goingwell, comes China. 7