Inflation's Outer Spaces

Inflation has dealt a harder blow to South America than to any other region in the world. Of the 86 nations in the U.N.'s global cost-of-living index, Bolivia is in first place. Chile is second, Brazil and Argentina rank high. "A fire burning down our house," Bolivia's President Hernan Siles Zuazo calls inflation. "We will be lucky if we get out at all."

The inflationary blaze in Latin America began about a decade ago with a small, warm glow, fed by the best of intentions: to match the standards of the prosperous, industrialized nations of the world, to live the full, good life. The specific objectives varied by nations--large public works, social welfare schemes, high wages, more leisure for workers, local rather than foreign development of national resources --all adding up to what economists call "the revolution of expectations." But expectations outran means; relatively backward economies could not supply the standards of fully developed states. Strained for the means, nations turned to their central banks, forced them into credit expansion by printing money.

Nationalization's Price. Bolivia's far-reaching revolution of 1952 gave land to virtually enslaved Indians and nationalized the mines of the rich tin barons who dominated the country. But land reform drastically cut farm output, and nationalization of the tin companies boomeranged as production slipped from 33,664 tons in 1951 to 27,435 in 1956. With fewer goods than before to pay for these social advances, Bolivia in a single year more than tripled the amount of paper money in circulation.

Chile 30 years ago plumped for social security modeled on advanced West European systems. Now an elaborate scheme with such frills as pensions at 100% of pay, social security costs 28% of the budget (v. 5% in the U.S.).

Argentina, determined to broaden its economic base and achieve self-sufficiency, built factories by decree, not in answer to economic demand. In eight years Dictator Juan Peron transformed Argentina's economy from predominantly agricultural to predominantly industrial, but left it saddled with inefficient plants making products that are priced out of the market.

Brazil self-righteously spurned offers by foreign companies with technical know-how to develop its petroleum resources, instead gave the job to a government monopoly. Result: Brazil produced only 12% of its 1956 requirements, had to spend $268 million on oil imports.

The result has been a jolting setback in the struggle toward a better life. By and large, the workers and middle classes of Argentina, Chile, Bolivia and Brazil live worse than they did ten years ago. And of all the nations of the world, they are among the least able to afford economic setbacks. Reason: their populations increase 2 14% annually, twice the world average; they must run twice as fast just to stand still.

The Austerocrats. Some hopeful signs are beginning to appear. Up against it, the sick nations of South America have begun to produce men of austerity and courage, who are insisting that their people tighten their belts for a return to realistic economies. President Pedro Aramburu of Argentina, an eloquent preacher of the gospel of higher productivity, has in the past two months successfully resisted three large-scale strikes for increased wages.

Bolivia's President Siles once went on a hunger strike to fend off pressures to break his austerity pledge. Said he: "I will never sign a decree assisting inflation." Instead, he forced through a law prohibiting issuance of new currency by the Central Bank. Today, Bolivia seems on the way to sound money.

Despite riots and bloodshed, Chile's President Carlos Ibanez del Campo (who will visit the U.S. next month) has stuck by the unpopular anti-inflationary course charted by the U.S. economic consulting firm of Klein & Saks (TIME, May 7, 1956). This year, as signs of success multiplied, the program took a terrible blow: the price of copper--source of 30% of all government revenues--fell 35%. New pleas to ease the belt-tightening program poured in, but crusty old (80) Austerocrat Ibanez held firm. Said he: "I am a man without a future. But we need to keep this policy. This policy will stop inflation and save the country."

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