How Others Escaped (and How Some Did Not): Bolivia, Ghana, Rwanda, Tanzania

The empirical case for the prescription

A series that argues for sound money for Ethiopia owes its readers an empirical demonstration that the prescription has worked elsewhere. This article provides it. The cases examined are not random. They are chosen because each began from a position roughly comparable to Ethiopia’s — a low-income economy with monetary disorder, fiscal pressure, and limited institutional capacity — and made a different monetary choice from the one Ethiopia has consistently made. The outcomes can be compared. The Ethiopian counterfactual can be imagined.

The four cases are Bolivia in 1985, Ghana from the late 1980s onward, Rwanda after 1994, and Tanzania under Benjamin Mkapa from 1995. Each is instructive in a different way. Bolivia is the textbook case of a successful stabilisation under conditions much worse than Ethiopia’s current ones. Ghana shows the long, uneven, partially-successful path of structural adjustment in Africa. Rwanda demonstrates that post-conflict recovery is possible with a specific kind of monetary discipline. Tanzania shows that an EPRDF-style developmental-state model can coexist with monetary discipline when the institutional foundations are correct. Taken together, they make the empirical case that the disease this series tracks is not incurable.

A caveat before the cases: comparative analysis is hard, and each case has features that limit the transferability of its lessons. The point is not that Ethiopia should literally do what these countries did. The point is that the structural-monetary disorder this series has been describing has been overcome elsewhere, and that the patterns of overcoming it are similar enough across cases to suggest the rough shape of what would work for Ethiopia. The article is not a comparative-development monograph; it is a demonstration that the prescription has empirical evidence behind it.

Bolivia 1985: the textbook stabilisation

The Bolivian case is the most extreme. By August 1985, Bolivia had been in inflationary disorder for nearly four years and in outright hyperinflation for three.¹ Monthly inflation in mid-1985 was approximately 60 percent — equivalent to an annual rate of approximately 24,000 percent. The annual rate touched 24,000 in some accounts, perhaps as high as 26,000 in others.² The Bolivian peso had effectively ceased to function as a store of value; transactions were occurring partly in dollars, partly in barter. The Bolivian state had run out of conventional financing options.

On 29 August 1985, three weeks after the election of President Víctor Paz Estenssoro and the appointment of Gonzalo Sánchez de Lozada as Planning Minister, Bolivia issued Supreme Decree 21060, which covered “all aspects of the Bolivian economy” and became, later, known as the textbook example of shock therapy.³ The decree did several things simultaneously: it raised the price of state-owned-enterprise petroleum products sharply (eliminating the implicit subsidy); it eliminated price controls across most of the economy; it allowed the peso to float to its market-clearing rate; it eliminated monetary financing of the government deficit; it imposed sharp restrictions on government expenditure; it laid the groundwork for renegotiation of external debt.

The young Harvard economist Jeffrey Sachs, who had been advising the Paz administration since before its election, was the principal external architect of the package. The intellectual frame was that Bolivia’s hyperinflation was primarily a monetary phenomenon driven by deficit financing, and that the only sustainable cure was simultaneous fiscal and monetary discipline. Half-measures would not work because the underlying dynamics would re-accelerate any temporary improvement.

The results were dramatic. Within months, monthly inflation fell from 60 percent to single digits. Within two years, annual inflation was approximately 10 percent — down from 24,000 percent. The exchange rate stabilised. The peso, after the initial sharp depreciation, became a usable currency again. Foreign investors, after years of capital flight, began to return.⁴

The Bolivian stabilisation also had real costs. The unemployment rate, which had been approximately 20 percent before the package, rose to 25–30 percent in the immediate aftermath.⁵ The state mining company, which had employed 28,000 workers, downsized to roughly 6,000.⁶ Homelessness rose. Substantial parts of the urban and rural poor experienced real hardship in the immediate post-1985 period. The argument for the package was that the alternative — continued hyperinflation — would have been worse, particularly for the poor whose savings were being destroyed by the inflation. The argument is, on the available evidence, correct. But it is not an argument that the costs were trivial. They were not.

The Bolivian relevance to Ethiopia is direct. The conditions Bolivia faced in 1985 were substantially worse than Ethiopia’s conditions in 2024. The fix worked. The costs were real but bounded. The country, while it has had subsequent macroeconomic challenges, has not returned to hyperinflation since. The package — full fiscal and monetary discipline imposed simultaneously, with parallel external debt restructuring — is the closest historical example to the kind of reform this series argues Ethiopia needs.

Ghana from the late 1980s: the slow grind

The Ghanaian case is less dramatic but more instructive about what reform under African conditions looks like over time. Ghana’s structural-adjustment programme began in 1983 under the Rawlings government and continued, with intervals of slowdown, through the 1990s and into the 2000s.⁷ The starting conditions were comparable to Ethiopia’s: a state-led economy with widespread price controls, a heavily overvalued exchange rate, chronic foreign-exchange shortages, accumulated external debt, and a population substantially impoverished by years of decline.

The Ghanaian reforms proceeded in phases. The initial 1983–87 phase imposed sharp exchange-rate devaluation, partial price liberalisation, and fiscal consolidation. The 1988–92 phase deepened the reforms with privatisation of state-owned enterprises and financial-sector restructuring. The 1993–96 phase brought a partial deceleration as political pressures asserted themselves; macroeconomic indicators worsened. The 1997–2000 phase resumed reform with new commitments and external support. The 2000s saw the establishment of an inflation-targeting framework and the introduction of capital-account liberalisation.

The cumulative impact has been substantial. Ghanaian per-capita income grew from approximately $400 in 1983 to over $2,000 by 2018 (in current dollars).⁸ The country achieved middle-income status. Inflation, while volatile, was brought down from triple-digit levels in the early 1980s to single digits for much of the 2010s. Poverty headcount rates fell substantially.

The Ghanaian case has also had recent setbacks worth acknowledging. The 2022 debt crisis required a fresh restructuring under the G20 Common Framework, comparable to Ethiopia’s process.⁹ Inflation reached 50 percent in 2022 before being brought back down. The fiscal disorder that produced the 2022 crisis was, in significant part, the result of a relaxation of the reform discipline that had been maintained through much of the 1990s and 2000s.

The Ghanaian relevance to Ethiopia: reform is not a one-time event. It is a sustained discipline that requires continuous institutional commitment. Ghana achieved enormous gains over thirty years of partial reform but lost some of them when the commitment lapsed. The post-2024 Ethiopian reform programme, if it is to produce sustained benefits, must be sustained over decades rather than presented as a single 2024 package.

Rwanda after 1994: post-conflict discipline

The Rwandan case is the closest comparator to Ethiopia in some specific dimensions. A small low-income country, post-genocide, with extreme institutional damage and a state effectively rebuilding from zero — Rwanda chose, from 1995 onward under the leadership of the RPF, a specific set of monetary and fiscal commitments that have distinguished it from most African comparators.¹⁰

The Rwandan choices were: maintain a managed exchange rate but with the rate continuously adjusted to maintain external competitiveness; impose strict fiscal discipline including hard limits on central-bank financing of the budget; develop a relatively independent central bank (the National Bank of Rwanda) with operational autonomy on inflation targeting; engage actively with the IMF, World Bank, and bilateral donors without abandoning policy autonomy in non-monetary domains; build a domestic capital market gradually with appropriate regulatory infrastructure.

The Rwandan results have been impressive on the metrics that matter for this series. Inflation has averaged in the low single digits for most of the post-2000 period — substantially lower than Ethiopia’s average across the same period.¹¹ GDP per capita has grown at sustained high rates. Rwanda has, despite (or because of) its small size, become an example often held up as the most disciplined post-conflict macroeconomic management in sub-Saharan Africa.

The political costs of the Rwandan model are real and contested. The RPF government has maintained close political control, the political opening has been limited, and the human-rights record has been criticised. The series’s editorial position is that the political costs cannot be dismissed. But the monetary component of the Rwandan model — the fiscal discipline, the central-bank independence, the inflation targeting — does not require the political authoritarianism. The monetary discipline could be combined with a more open political system if the political conditions allowed it. The Rwandan example shows that a small African country can run disciplined monetary policy, even in difficult institutional conditions, if the political will is present.

Tanzania under Mkapa: developmental state with monetary discipline

The Tanzanian case is instructive because it shows that the developmental-state model — to which Ethiopia’s EPRDF appealed — does not require the specific monetary architecture Ethiopia chose. Tanzania under Benjamin Mkapa (1995–2005) and his successor Jakaya Kikwete (2005–2015) ran an explicitly developmental approach to economic policy — substantial state involvement in infrastructure, education, and health expansion; targeted industrial-policy interventions; partial market liberalisation with deliberate state retention of strategic sectors — combined with sustained monetary discipline.¹²

The Tanzanian central bank achieved operational autonomy in the late 1990s. Inflation, which had been in the high double digits in the 1980s, was brought down to single digits by 2000 and has been maintained at relatively low levels ever since. The exchange rate, while managed, was kept close to market levels with periodic adjustments rather than maintained at fictional administered levels. The fiscal architecture was kept consistent with the monetary discipline through binding limits on central-bank financing of deficits.

The Tanzanian growth record under Mkapa and Kikwete was, while less spectacular than Ethiopia’s official GTP-era figures, sustained and broad-based. Per-capita GDP roughly tripled in real terms across the two-decade period.¹³ Poverty reduction was substantial. Infrastructure was built. Education and health indicators improved markedly.

The Tanzanian relevance to Ethiopia is the most direct of the four cases. You do not have to choose between developmental ambition and monetary discipline. Tanzania chose both. The Ethiopian framing that monetary discipline is incompatible with developmental ambition is not, on the African comparative evidence, correct. The Tanzanian case is a counterexample.

The lessons across cases

Several patterns emerge from the four cases that the series will draw on in articles 27 and 28.

First, sound monetary policy is achievable in low-income countries with limited institutional capacity. The Bolivian, Rwandan, and Tanzanian cases all began from positions in which conventional analyses would have predicted continued monetary disorder. They achieved disciplined macroeconomic management not through favourable initial conditions but through specific institutional commitments combined with sustained political will.

Second, the institutional commitments that work are recognisable across cases. They include: an exchange rate that approximates the market-clearing level (whether floating or managed); a prohibition on monetary financing of government deficits, formal and operationally enforced; central-bank operational autonomy on inflation control; a fiscal framework that does not require deficit financing as the default; continuous engagement with external creditors that disciplines policy through visibility. Each of the four cases combined these elements in slightly different ways, but the elements themselves are similar.

Third, the costs of the transition are real but bounded. Bolivia, Ghana, Rwanda, and Tanzania all imposed substantial transition costs on their populations during the initial reform period — unemployment, inflation pass-through, reductions in subsidised consumption, displaced state-enterprise employment. These costs were politically painful and required specific compensating mechanisms (social safety nets, gradual sequencing, communication). But the costs were time-limited and were succeeded by sustained periods of macroeconomic stability that produced larger welfare gains than the transition costs.

Fourth, the discipline has to be sustained beyond the initial reform. The Ghanaian 2022 crisis is the cautionary tale: a country that achieved substantial reform gains in the 1990s and 2000s lost some of them through subsequent fiscal indiscipline. The post-2024 Ethiopian programme, to produce the predicted long-term benefits, will need to maintain the discipline for years rather than only for the duration of the current IMF programme.

The Ethiopian comparison

Set against these four cases, the Ethiopian record stands out. Ethiopia has had higher inflation, higher exchange-rate disorder, deeper parallel-market premia, more accumulated external debt, and more severe fiscal-monetary linkage than each of the comparators. The reasons are not those of fate or external constraint; they are the reasons articles 5–22 have been examining — specific institutional choices, specific political-economy patterns, specific intellectual commitments to a particular reading of the developmental-state model.

The honest comparative conclusion: Ethiopia did not have to be where it is. The disease was treatable. The treatment exists. Other countries facing comparable challenges chose the treatment and produced different outcomes. The Ethiopian decision not to choose the treatment, sustained across three regimes and seventy-five years, is the political-economy phenomenon the next article examines.

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Footnotes

1. Jeffrey Sachs, “The Bolivian Hyperinflation and Stabilization,” NBER Working Paper 2073 (November 1986), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=227263. ↩

2. Roger Mario López Justiniano, “Bolivia’s Hyperinflation and Stabilization: Nearly 40 Years Since D.S. 21060,” July 2025, citing the approximately 24,000 percent annual rate and 60 percent monthly rate. ↩

3. “Shock therapy (economics),” Wikipedia, https://en.wikipedia.org/wiki/Shock_therapy_(economics), describing Decree 21060. ↩

4. Sachs, “The Bolivian Hyperinflation and Stabilization”; Jeffrey Sachs and Juan Antonio Morales, “Bolivia’s Economic Crisis,” in Developing Country Debt and Economic Performance, Volume 2, ed. Jeffrey Sachs (University of Chicago Press, 1990). ↩

5. Shortform, “Jeffrey Sachs: Bolivia’s Shock Therapist,” citing the post-reform unemployment data. ↩

6. Same source, on the mining-sector downsizing from 28,000 to 6,000 workers. ↩

7. Tony Killick, “Ghana under IMF Stabilization, 1983–1991,” in The IMF and the Adjustment Process, ed. Tony Killick (Routledge, 1995); Ernest Aryeetey and Mavis Gyimah, “Ghana’s Economic Reform Programme,” in Ghana’s Economic Development in a Democratic Environment, ed. K. Boafo-Arthur (Lynne Rienner, 2007). ↩

8. World Bank, World Development Indicators, Ghana GDP per capita series. ↩

9. International Monetary Fund, “Ghana: Request for an Arrangement Under the Extended Credit Facility,” IMF Country Report 23/168 (May 2023). ↩

10. For the Rwandan case, see Pritish Behuria and Tom Goodfellow, “Leapfrogging Manufacturing? Rwanda’s Attempt to Build a Services-Led ‘Developmental State’,” European Journal of Development Research 31, no. 3 (2019): 581–603; David Booth and Frederick Golooba-Mutebi, “Developmental Patrimonialism? The Case of Rwanda,” African Affairs 111, no. 444 (2012): 379–403. ↩

11. World Bank, “Inflation, consumer prices (annual %) — Rwanda,” World Development Indicators. ↩

12. For the Tanzanian case, see Tim Kelsall, Business, Politics, and the State in Africa: Challenging the Orthodoxies on Growth and Transformation (Zed, 2013), chapter on Tanzania; Antoine Heuty and Sara Aristizabal, “Tanzania’s Mining Boom,” Journal of African Political Economy 41, no. 142 (2014). ↩

13. World Bank, World Development Indicators, Tanzania GDP per capita series. ↩