Bolivia: Neoliberalism and it’s Discontents

A few notes on the recent economic history in Bolivia and the failure of the neoliberal reforms.

  • Bolivia pursued neoliberal reforms more vigorously than any other country in Latin America.
  • Unlike the much-used neoliberal success story of Chile, Bolivia is volatile and has generally not grown as hoped for.
  • The 2005 election of the anti-capitalist, anti-U.S. Evo Morales shows the significance of the dismay with neoliberalism.
  • After a decade of corrupt and incompetent authoritarian rule, democracy returned to Bolivian 1981, a nation now deeply in debt with uncontrolled patronage spending and capital flight.
  • The new government of Hernan Siles Suazo presided over a fractious coalition incapable of managing the intense internal disputes and warring with the powerful miner’s union (Central Obrera Boliviano).
  • 1982-5: the COB unleashed 3,500 work stoppages, GDP growth declined drastically and inflation rose to 20,000%.
  • Unable to govern Siles Suazo called early elections – the National Revolutionary Movement of Victor Paz Estenssoro won power. The new president had been the hero in the 1952 Bolivian revolution.
  • His administration had nationalised the tin industry, armed peasants and workers & implemented a major land reform. He also formed a legislative coalition with the Revolutionary Left Movement.
  • No one expected the decisive shift to neoliberalism, but Estenssoro had little choice with the catastrophic finances and hyperinflation.
  • 3 weeks in he launched the New Economic Plan – equivalent to the standard structural adjustment supported by the IMF/WB.
  • Inflation dropped to 9% within months but also led to sizable job losses in the manufacturing, mining and government sectors.
  • The reforms were supported by the Confederacion de Empresarios Privados de Bolivia but the exposure to foreign imports caused many firms to go bankrupt.
  • The World Bank supported the reforms with substantial social assistance but unfortunately much of this was lost to Bolivia’s corrupt and patronage based political system.
  • Neoliberal reforms slowed dramatically under the government of Jaime Paz Zamora between 1989-93.
  • Growth in Bolivia was moderate based on improved export performance, management of external debt & considerable social assistance schemes.
  • The nation took a further sharp neoliberal turn under Gonzalo Sanchez de Lozada in 1993, the key architect with Jeffery Sachs in theNEP.
  • He had been educated in theUSand exposed to US capitalist democracy.
  • The “Plan for All” (el Plan de Todos) was an ambitious effort to fundamentally alter the character of state, market and citizenship in the country: it included privatisation of the largest and most important sectors of the economy.
  • The most important aspect was the capitalisation scheme which partly privatised 6 sectors: telecommunications, rail, the national airline, electricity, tin and hydrocarbons.
  • Winning bids received 50% ownership and operational and administrative control; they had contractual obligations to invest in the telecommunications and electricity sector.
  • Revenues were used to shore up pension schemes, create a stock market and pay out a pensions to all Bolivians aged 65 and over (known as bonosol).
  • It was a creative and innovative plan to establish a market economy in Bolivia.
  • Privatisation raised U.S.$ 1.5 billion, capital and investment levels increased, all whilst inflation, unemployment and national debt fell.
  • 1994-1998 GDP growth averaged 5%. Debt as a percentage of GDP fell from 80% in 1994 to 55% in 2000.
  • There were also problems caused by reforms.
  • Investment fell and more importantly, government revenue fell creating a large deficit.
  • Institutional inadequacies blocked progress in the education sector.
  • In many cases, decentralisation support clientelistic, corrupt and authoritarian practices and did not empower local communities.
  • Newly privatised industries underperformed and failed to carry out prior agreements.
  • The Bolivian stock market attracted little attention and the regulatory institutions were hindered by institutional weaknesses.
  • Hugo Banzer’s government (1997-2001) suspended the stock market in face of fiscal difficulties.
  • It is worth noting that emergency powers were regularly used to repress opposition to such reforms.
  • The lesson learnt from the Plan de Todos and the subsequent recession is that Bolivia had been an economy almost solely based on commodity extraction and export (subject to volatile prices) & a vast low-wage informal sector out of the reach of social benefits; neoliberalism did not change this fact.
  • Conflicts over privatisation triggered violent resistance.
  • Banzer’s ‘water war’: protest against a poorly thought-out, undemocratic imposition of unwanted privatisation.
  • Sanchez de Lozada’s ‘gas war’: he followed market principles and sold gas at the cheapest expense to Chile and not Peru. This was unpopular with Bolivians who remember the 1879-1884 war in which Chile defeated Boliviaand annexed Bolivia’s coastal territory, leaving the country landlocked.
  • The unpopular decision was a trigger for deeper resistance to Sanchez de Lozada’s government and when protestors were killed in the ensuing violence, the president was forced to flee the country to theUnited States.
  • As of 2010 he is under indictment inBoliviafacing crimes against humanity.
  • It is clear for Bolivia that getting prices right and withdrawing the state in favour of markets does not naturally result in economic growth.
  • Bolivia’s institutional weaknesses and underdeveloped economy need creative policy making and a more substantial solution.
  • Evo Morales beat the traditional political forces of the nation to win power in 2005; his campaign focused on anti-U.S./American-style capitalism and indigenous justice with considerable success.
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