In the late 1980s and again in the early-mid 1990s, the central government’s fiscal balance was threatened by a declining revenue share, and the CPI inflation rate rose to above 24 percent in 1994. As Figure 1 illustrates, the inflation was not the result of budget deficits – since the total budget deficit never exceeded percent of GDP during this period – but, instead, resulted from credit expansion as the state banking system was used to fund essentially state expenditures. Between 1992 and 1995, M2 grew by an average annual rate of 36 percent, mostly due to.
