My post about the Peace Corps budget yesterday got me thinking and so now I’m back to look at the issue in more detail.  I pulled the historical exchange rate between the US dollar and the Guinea Franc[1] and compared that to the estimated inflation rate from two sources: the CIA WorldFact Book and the International Monetary Fund (IMF)[2].

Nearly every time we look at economic numbers we have to take inflation into account, but I’ve rarely dealt with exchange rates so something in my premise might be off.  But it seems to me that if the number of Guinea Francs (GNF) you can buy with a US Dollar (USD) is decreasing at the same time that you have massive inflation in Guinea, you could see costs for the Peace Corps program soar.  On the other hand, if the exchange rate is favorable, that is, USD is buying more GNF, then it alleviates some of the inflation pain.

Enough talk.  The data:

You might first notice that there is a significant discrepancy between the inflation data reported by the CIA and that reported by the IMF.  Ah the difficulties of determining inflation rates in small economies.  Its hard enough in the United States (consider the CPI and various issues with it (pdf link)).  Point is, we should take these numbers with a grain of salt.

But to summarize, the change in costs for the Peace Corps could have been anywhere from -5.6% to 4.1% in 2006.  Those are small changes that we can live with.  But in 2007 we can see that combined inflationary costs with the falling value of the USD relative to GNF results in an increase in costs of 46.1% to 52.2%.  That is a highly disturbing number.  Then in 2008 we have a net decrease in costs of 1.5%, a nice break from 2007.

And it is the 2007 number we should be concerned about.  Imagine that number repeated across many countries, some perhaps with lower inflation pressures, but most facing the same 2007 decline in dollar value as is seen here.  Is it any surprise the Peace Corps is having budget problems?

Worse, the actual cost in 2007 may be substantially higher.  I calculated the percent change in exchange rates by simply taking the first and last rate for the year.  But this disguises a huge drop in the value of the dollar that occurs in the spring and summer of 2007.  By the end of 2007 the dollar has recovered some, and so the percent change slightly masks the full loss.

And according to “Peace Corps Problems,” a post from a returned Peace Corps volunteer in Guinea, the Peace Corps is having trouble keeping staff because they can’t pay on pare with the mining companies.  Its not the first time I’ve heard of staff losses, though I don’t know if the of staff that resulted in my cancelled trip to Dominica is due to staff being hired away or another reason.

Still, the Peace Corps probably does not see its costs increasing in the same way that consumer prices are increasing, especially since living allowances for volunteers are capped at 10% (I have got to find my reference for that).  And the exchange rates I used are the interbank rates, and I don’t know whether the Peace Corps, as an agency of the US government, commands a better or worse rate.

Here is my spreadsheet with the exchange data.

FOOTNOTES
1. Onanda.com. http://www.oanda.com/convert/fxhistory. ↑
2. Obtained from indexmundi.com. http://www.indexmundi.com/guinea/inflation_rate_(consumer_prices).html. ↑