Gunnar,
Being from Congo, I thought I might mention something about your comment on inflation in the Congo: "A country that fights a war and keeps inflation rate low is hard to find."
Congo-Kin is an exception to this assumption, I would say. The hyper-inflation that existed during the last years of the Mobutu era was not caused by any government spending (or over spending). The government almost never paid the civil servants (including teachers/professors in state-run schools, universities) or soldiers. When, and if, they did, they paid them around 6-8 months late. Also, the government did not spend on any infrastructure projects or even what you call "normal" things in developped countries (and even in other LDCs) such as maintaining roads, sanitation, health, etc. However, they did like spending on "luxury" projects.
So you may be asking what caused the hyper-inflation? The government would print a lot of currency to pay for salaries (when they did) or other commitments. Since the early 90s, most of the currency was printed locally at the central bank because the government could afford to print it abroad (couldn't back the money & air transport cost more than the money is worth). Most of the time, the currency would be pocketed by the ruling elite and their cronies. They would then take that currency and exchange it in the black market for US dollars, thus, causing the exchange rate to increase (devaluate). Since the majority of goods being sold in the country are imported, prices would rise dramatically. I might add that the exchange rate used to change almost hourly.
With the new regime, the central bank governor (who worked for Citibank for quite a while, and was previously at the head of the group's local operations) was placed with the task of introducing the new currency. You must be knowing all the details on that. Now, though, the Bank has not printed any more currency (that is currently in use) to pay for anything. As a result, a lot of the civil servants have not been paid. But that is the sacrifice for stability in prices.
Hope this helped. Sorry if it was too boring. Comments are welcome.
thanks
imran |
