The EconomistJanuary 27th 2018 Finance and economics 63Hyperinflation in VenezuelaBolívar blues
E
VEN a modest rate of inflation com-
pounds over time. This is why your
tipsy grandfather might wistfully recall
how little a pint of beer cost in his heyday.
In Venezuela, where prices are rising at a
four-figure annual rate, the good old days
were last month. The defence minister,
Vladimir Padrino López, on January 19th
urged business leaders to peg back prices
to their levels of December 15th, when
presumably everything was justfine.
The spending power of the bolívar,
Venezuela’s currency, had collapsed long
before then. The Economist’s Big Mac
Index gives a rough guide to how fast it
has fallen. The index is based on the idea
of purchasing-power parity (PPP), which
says a fair-value exchange rate is one that
leaves consumer prices the same in differ-
ent countries. In our index, the price of a
Big Mac is a proxy for all goods. In Cara-
cas, this week, a Big Mac cost 145,000
bolívars; in American cities, it cost an
average of $5.28. The ratio of those prices
gives aPPPexchange rate of 27,500 bolí-
vars. Two years ago, the rate was 27 bolí-
vars. By this yardstick, the currency has
lost 99.9% of its value in almost no time.
In fact the Big Mac gauge probably
understates the general rise in prices and
the slide in the currency. DolarToday, a
US-based website that publishes real-
time quotes, putsthe black-market ex-
change rate at around 260,000 bolívars to
the dollar, and falling. This rate has be-
come one of the few reliable yardsticks
against which to peg prices in Venezuela.
Have your tyre replaced in Caracas, andthe mechanic will check the DolarToday
exchange rate before presenting the bill.
Imported goods, such as tyres, have a
reference dollar price. But a lot of local
prices do not keep up with the collapsing
value of money. A monthly mobile-
phone tariff is 38,000 bolívars, or 15 cents;
a haircut is 25 cents. Wages tend to lag
behind prices, in large part because it is
so hard to keep up with them. The
monthly minimum wage hasjust been
raised for the umpteenth time, to around
800,000 bolívars. That is less than $4 at
the currentblack-market exchange rate. If
wages were perfectly indexed, it would
serve only to speed up inflation. But their
slow and uneven adjustment means the
pain of hyperinflation is shared haphaz-
ardly. As Juan Perón of Argentina suppos-
edly said, if prices take the lift, wages
cannot take the stairs.CARACAS
As inflation soars, the currency slidesGood golly, Miss Bolí!
Venezuelan bolívar to the $
Implied PPP* conversion rate, inverted log scaleSources: McDonald’s;
The Economist*Purchasing-power parity, based
on The Economist’s Big Mac index2010 12 14 16 18100,00010,0001,000100101B
ESIDES shoes and shrimp, Bangladesh
exports poverty cures. Microfinance
was developed there in the late 1970s be-
fore spreading. In 2002 BRAC, a charity,
started giving assets such as cows (and
training in how to manage them) to desper-
ately poor women. That approach has
spread, too. The latest poverty remedy to
emerge from Bangladesh isdifferent: it tar-
gets men, and rather than trying to make
people more productive in their villages, it
encourages them to move.
In Rangpur, a northern district, agricul-
tural labourers endure an annual hunger
in the autumn, known asmonga. The rice
crop has been planted but is not ready to
harvest, so work isscarce. Jobs abound in
the cities, but poor farmers are loth to use
their dwindling savings on a bus ticket. It is
a good example of a poverty trap.
So, for the past ten years, researchers led
by Mushfiq Mobarak, an economist at Yale
University, have tried offering cash to poor
households so long as somebody moves to
a city to look for work. The effects of this in-
tervention have been measured through
randomised controlled trials, including a
large one, covering 133 villages, which be-
gan in 2014. They turn out to be strong.
Predictably, money encourages move-
ment. In villages where no cash was of-
fered, 34% of poor households sent a mi-
grant to a city duringmonga. In those
where a few households were offered
grants of 1,000 taka (about $12), 59% of
them sent someone to a city. But in villages
where most poor households were offered
cash, fully 74% of those approached sent amigrant. That suggestsa snowball effect: if
lots migrate, the hesitant may follow.
Household income rises, largely be-
cause men are able to work more hours
each day. Sree Jotin, an agricultural la-
bourer with a small plot of his own in
Rangpur, reckons that he earns about 250
taka a day in the fields. In Dhaka, where he
worked as a cycle-rickshaw driver last No-
vember and December, he pulls in about- He pays 100 taka to rent a rickshaw
and 110 for food, but makes far more than
he could at home (he sleeps in a corner of
the garage, so has no housing costs).
Though he believes Dhaka’s filthy air is da-
maging his health, he is glad he moved.
Village life is profoundly affected, and
not just because more men are sending
money home. With so many workers ab-
sent, agricultural wages rise. Oddly, house-
holds that are encouraged to send some-
body to a city end up earning slightly more
from rural work than households in the
control villages. Many men shuttle be-
tween country and town, working where
they can. Researchers are now trying to
work out whether urban economies have
been affected. Fully 140,000 villagers were
helped to move in 2017. Such a large wave
could have depressed pay for unskilled
work in the cities.
Could the same approach work else-
where? Mr Mobarak points out that Ban-
gladesh is unusually homogeneous for
such a populous country. As a result, villag-
ers can move around easily. It has several
competent charities, including one called
RDRS, which handed out the money in
Rangpur. The government does little to
curtail urban migration. Other countries
where Mr Mobarak is trying to launch sim-
ilar programmes may prove tougher. A trial
has begun in West Timor, in Indonesia.
After that, all going well, comes China. 7Poverty and migrationOn their bikes
DHAKA
One way to alleviate rural poverty is to
nudge people into citiesРЕЛИЗ
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