Problems of Budget, Inflation, & Project Assessment with Money:
Trying to compare systems or make other evaluations based on cost has a number of problems that must be addressed. We started this work in March 1986 with a budget in Cordobas. However, the current economic situation in Nicaragua makes making economic decisions based on Cordobas almost impossible. Why?
Foreign Exchange/Hard Currency
One of the key issues in the project is the amount of imported products that are required to build the houses. We would like to list the imported products and the number of Cordobas we paid for these products and use this figure to indicate the imported component of the project. However, this will not give us a realistic number since there are at least 3 different exchange rates that we must take into account and these vary radically.
In March '86 the official rate for Cordobas to dollars was C$70/US$, the parallel market rate was C$950/$US and the black market rate was C$1600-2000/US$. (Note: foreign aid projects we were told were required to operate with a rate of exchange equal to 1/2 the parallel market rate). Obviously using one or the other of these rates for calculating will radically change the analysis. The official rate would make imports seem so cheap that it would be absurd to build with local materials. The black market rate makes imports very expensive.
What this means is that we cannot use costs in Cordobas to effectively determine the imported component of different projects.
The decision of when to use local materials and when to use imported ones in part boils down to the following question. Do we get more housing by building it ourselves (in Nicaragua) or do we get more by growing coffee (for example), selling it abroad and using the profits to buy housing materials to import. Unfortunately we will need a much more sophisticated means of evaluation than a simple accounting of costs in Cordobas.
At the moment the terms of trade are bad and the economic exchange so chaotic that simply in terms of being able to proceed with work it makes sense in most cases to use local materials.
The conditions of inflation also makes it almost impossible to use Cordoba costs for evaluating costs of a project. For example, when we started this project in March a skilled laborer earned about C$1500/day, in May this had risen to C$2500-3500/day, in July the local maestro de obra charged C$6000/day. Inflation for the first quarter of 1986 was running at about 260%.
This means that a cost estimate made in a particular month cannot be reasonably compared to a cost estimate (perhaps for a different building) made two months later. This makes comparative costing to evaluate different building systems very difficult to do.
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