By Andrew Enever in La Paz, Bolivia

Bolivians are having a hard time.

The country has been in economic crisis for two years with zero growth, unemployment rising and firms closing their doors on a weekly basis.

We practically need a miracle to be able to meet our financial obligations

Javier Sonco, shopkeeper

Now, as the national currency is devalued to maintain competitiveness with Argentina, small businesses which were already struggling are feeling the noose tighten.

"Every month we get less dollars for our bolivianos and every month the business is less profitable," explained Javier Sonco, owner of a small shop in the city of La Paz.

Vicious cycle

Mr Sonco's business brings in about 1,750 bolivianos ($250) per month.

Once the cost of supporting his family of four is discounted the only way to reinvest in the business is to take out small, dollar-denominated loans.

But with the next loan dependent on successful repayment of the current one, the increasing weight of their debt is casting doubts over the future of the business.

"It is nearly impossible to keep up with the interest payments," Mr Sonco said.

"We practically need a miracle to be able to meet our financial obligations."

Currency war

Sonco is among many Bolivian individuals and companies suffering the fallout of a South American devaluation cycle that has been rolling for three years.

"There is a type of devaluation war in the region that started after Brazil's devaluation in 1999 and that is now compounded by Argentina's situation," said economic analyst Napoleon Pacheco.

"All the Southern Cone countries are devaluing their currencies to maintain their competitiveness."

Since January 1998, the boliviano and Peru's nuevo sol have fallen by about 30% against the US dollar.

Despite this weakness, they have been the region's most stable currencies.

Chile, Uruguay and Colombia have all suffered heavy falls.

Export drive

The theory behind the cycle is that, through devaluation, countries achieve a greater level of competitiveness on export markets.

Sugar imports have become more expensive

If one country in the region devalues the others have to follow to maintain that competitiveness.

It is a theory that has been supported by Bolivia's central bank, which has been accelerating the rate of devaluation to avoid a sudden currency collapse as occurred in Argentina.

Bolivia's policy has helped at least some firms.

"We don't really feel the negative effects of the devaluation in Argentina because we are exporters," said Sergio Barragan, commercial manager at Mabet, a company selling wood products in the US and Chile.

"Most of our costs are in bolivianos so it is actually advantageous for us."

Production costs rise

But for companies that do not have an export market, the weakness is increasing production costs and making life difficult.

"We pay dollars for all our imported raw materials so they are always getting more expensive," said Giovanni Ferrari, commercial manager at biscuit and pasta producer Ferrari Ghezzi.

"But we are selling our products in bolivianos."

The company, like many in Bolivia, has been struggling to keep its head above water.

Staff numbers have been cut by a third in the last year and it is months since the firm registered a profit.

With margins almost invisible, a serious devaluation could be the final straw.

"There are predictions that this year the boliviano will devalue by 15%," Ms Ferrari said.

"The danger certainly exists that we might have to cease operations."

Rise of the dollar?

Beyond the short term problems, the possibility has also emerged that the continuation of the devaluation cycle will lead to the effective dollarisation of the region.

In Bolivia, fears over the stability of the national currency have already resulted in 90% of all savings being held in dollars to protect their value.

If the current trend continues, this lack of faith in the national currency could lead to its virtual disappearance.

"If regional currencies continue to devalue over a period of 10,15 or 20 years, the dollarisation of the region could be inevitable," Mr Pacheco said.

"This would mean the loss of one of the last small areas of economic influence and autonomy that governments still have."