Introduction
An overview of the Latin American countries reveals
that practically the entire region is faced with
numerous development challenges including serious
poverty, inequality, and rising unemployment levels.
In this context, there have been various attempts
at addressing these vital issues of this region
including programs introduced by the World Bank
and the International Monetary Fund. In this context,
particular focus has been given on supporting
national and regional economic reform efforts,
the restructuring of the financial sectors, and
human development programs through partnerships,
lending and non-lending instruments. Though there
were significant improvements to this respect
including Mexico and Argentina's growth showing
a steady rise at 5.1 percent and 4.4 percent respectively;
Uruguay at 4.9 percent; Chile at a strong 7.1
percent, and Brazil showing a slow growth rate.
The following paper will however limit its discussion
to the economic growth of Bolivia, located within
the same Latin American continent. (Library of
Congress, 1989; World Bank Annual Report, 1997).
Bolivia - In Brief
With the official name of the Republic of Bolivia,
or Bolivia in short, it has her capital at La
Paz, which is also the seat of the federal government.
The city of Sucre, however serves as the legal
capital as well as the seat of the nation's judiciary.
A brief on the economic indicators of Bolivia
reveals that as of 1987 statistics, Bolivia's
Gross Domestic Product was 4.35 billion US dollars
or approximately USD 640 per capita. Though the
nation witnessed its growth rise to 5.5 percent
per annum in the decade of the 1970s, the growth
rate witnessed a negative spiraling trend up to
the end of 1987, with unemployment reaching a
huge 20 percent from the 6 percent in 1970s. This
was perhaps triggered by a continuous spate of
recessions and hyperinflation levels in practically
all the formal sectors of the economy. (Library
of Congress, 1989; World Bank Annual Report, 1997).
Agriculture Sector
With the status of the second most agricultural
nation on the entire South American continent,
Bolivia has rich and fertile highlands employing
60 percent of the farmers while another 20 percent
are employed in the equally rich fertile valleys
across Bolivia. The fact that some 23 of the GDP
accounts from the agriculture, employing some
46 percent of the entire nation's work force speaks
well of the tremendous value and contribution
of agriculture to the nation's economy. However,
the relatively low exports from agriculture amounting
to as little as 15 percent also shows that the
nation is suffering from primitive farming technology,
and little support from the government to raise
the share of agriculture in the nation's export
potential. Though significant, one must note Bolivia
also has an underground economy employing some
two thirds of the entire workforce, dealing in
contraband drugs, coca and other trading commodities.
Industry
An insight on the various industries in Bolivia
show that mining accounted for a significant share
in the economy, with silver and tin as the principal
mined products. The mining sector accounted for
4 percent of the GDP, 36 percent of the exports,
providing for a 2.5 percent of total government
revenues, and employing 2 percent of the labor
force. Though playing a minor role, the manufacturing
sector brought in 10 percent of the GDP as of
1987 statistics. The total number of employees
engaged in all the industries accounted for 20
percent of the entire labor force.
Energy Sector
The energy sector has also played a key role,
as hydrocarbon particularly natural gas accounts
for a leading export potential as of 1980s statistics.
Bolivia has a relatively low domestic energy consumption,
with a 46 percent share used for residential/commercial
purpose, transportation using another 31 percent,
industry utilizing 20 percent and mining at a
low 3 percent only.
Services Sector
The services sector employs some 34 percent of
the nation's workforce including banking, financial
services, transportation, communications, and
tourism. Though the nation suffers from a strong
and stable financial status, the private banking
sector has thrived over the years with assets
of more than 357 million USD, as of 1988 statistics.
Imports/Exports
The official statistics as of 1987 show that the
country imported goods worth more than 777 million
USD, while the unofficial import figures crossed
the 1 billion-dollar mark primarily due to the
import of contraband material. As for the export
statistics as of 1987, these totaled some 569
million US dollars, perhaps the lowest in the
entire decade of 1980s. The government then abolished
all export taxes and introduced the floating exchange
rate, with the result that unofficial coca-related
exports nearly equaled the official figures of
1980s, with revenues ranging from 600 to a billion
US dollars per annum. As of 1985 however the leading
commodities to be exported included hydrocarbons
accounting for 11 percent of the nation's GDP,
and covering for more than 50 percent of government
revenues. Natural gas was the leading exported
commodity duly replacing tin and silver witnessing
a healthy growth from 21 to more than 44 percent
during 1980 to 1987. (Library of Congress, 1989;
World Bank Annual Report, 1997).
Balance of Payment
Bolivia's total external debt stood at 4.6 billion
US dollars as of 1986. This was largely attributed
to increasing public sector expenditures amounting
to more than 30 percent of the GDP. A brief on
the deficit showed that as of 1987, it was 500
million US dollars or 10.5 percent of the GDP,
which witnessed a decline to 6 percent by 1988.
As for the nation’s gross reserves, they
stood at approximately 405 million US dollars,
net reserves at 181 million US dollars and gold
reserves at some 300 million US dollars respectively.
Exchange Rate
As of January 1, 1987, the official currency Bolivian
peso was replaced with Bolivian, and when it was
floated with the US dollar, the currency witnessed
became somewhat stable at B2.3 equivalent to 1
USD as of 1988 statistics. The difference between
the official and black market rates however it
did not exceed 1 percent. (Library of Congress,
1989)
The Growth and Stabilization of the Bolivian
Economy
Having briefly mentioned the primary economic
indicators of the economy of South American country
of Bolivia, the following part of the paper will
present some of the salient aspects of the growth
and stabilization witnessed in the economy of
Bolivia.
A brief on the macroeconomic stabilization reveals
that it was in 1985 that the actual effects of
stabilization of the Bolivian economy began to
emerge. This was largely due to the policies of
International Monetary Fund, in particular IMF's
Stand-By-Arrangement facility that aimed at bringing
an end to the hyperinflationary levels. Some of
the major accomplishments were based on strong
emphasis on the macroeconomic policies, combined
with a set of structural reforms, and an emphasis
on greater political stability. With considerable
gains, the IMF sanctioned set of policies left
a positive affect over the next decade, and the
Bolivian economy witnessed a relative stabilization
taking into account the following changes.
As of 1985, the inflation rate was 23 percent,
which was significantly brought down to 18 percent
by 1990, a figure which continued till the level
reached single digit figures in 1995, and somewhat
continues to date. Indeed one of the most effective
areas, the ending of the hyperinflation levels
was somewhat dramatic for the Bolivian economy
as a whole. It may be observed that while other
countries generally relied on an exchange rate
anchor, the key to Bolivia's successful recovery
was based on fiscal correction measures, including
the measure aimed at practically eliminating inflationary
financing of the nation's budget from the central
bank. With the strict control measures on the
wage bill the public sector deficit was also reduced
from a huge 30 percent of GDP in 1984 to approximately
4 percent in 1986, a policy which continued for
the entire next decade maintaining the deficit
level through financing from concessional external
sources. The unification and flotation of the
exchange rate was yet another factor which provided
a strong impetus for the stabilization of the
Bolivian economy, as also bringing vital improvements
in the competitive status of the nation. (Library
of Congress, 1989; World Bank Annual Report, 1997).
The rate of growth of the economy has been averaging
at more than 4 percent during the years 1990 to
1997, a figure which somewhat contracted from
10 percent in the first half of the 1980s decade.
The external debt was brought down from a high
of 100 percent of Gross Domestic Product to a
50 percent low.
With gross revenues declining to their lowest
in 1985, foreign direct investment in areas of
exports and infrastructure boosted these revenues
as also providing impetus for maintaining current
account deficits.
The Introduction of Structural Reforms to Initiate
Growth and Stabilization
Another set of policies included the structural
reforms which not only initiated growth and stabilization
for the entire Bolivian economy, they also served
to reduced extensive state interference in the
economy which had been on the rise during the
period between 1952 and 1985. Strengthening social
support was also another area that was given impetus
by the introduction of the various structural
reforms.
One of the changes to bring structural reforms
was to invite foreign direct investment in areas
of energy development such as hydrocarbons, mining
sectors, and investment for which relevant laws
were formulated. The passage of these laws thus
precipitated large foreign direct investments
in the said areas of the economy. A notable development
to this respect was the Brazil gas pipeline, which
has become Bolivia's largest export earner, as
well as a source of nation's growth in the last
few years.
Another area that has helped the nation attain
significant levels of growth and stabilization
is the move of transferring and transforming public
sector enterprises into private entities. This
move has helped lower the staggering public finances
which was otherwise being spent on the operations
and running of numerous public sector enterprises.
It has also provided the government with needed
funds to cater for a number of social welfare
programs such as the helping the poor and providing
basic health care facilities. Allowing private
enterprises the facility to carry out businesses
in the nation has also opened up opportunities
for private investment and growth, in turn bringing
prosperity across the breadth of the economy.
A structural reform that has provided for enhanced
private sector involvement is the removal of price
controls, as well as systematic trade liberalization,
making Bolivia one of the most open trade regimes
in the entire South American continent. The said
reforms have also provided for an establishment
of an independent central bank as well as allowing
state-owned banks to be purchased by private sector.
The area of social services was also enhanced
from the structural reforms taken by the government.
These included reducing child mortality by more
than 50 percent, enhancing the quality of and
access to primary education, and strengthening
old-age security for Bolivians through the introduction
of pension reforms.
The role and importance of political stability
is also of equal importance in the gradual growth
patterns and stabilization of the Bolivian economy.
One may note that between the years of 1964 to
1985, there were some 30 governments, and a larger
number of economic teams, which resulted in deteriorating
economic conditions, instead of being of any assistance.
However, with the return of democracy, and regular
and peaceful changes in governance, the nation
has followed a consistent path of growth and development
in practically every sector of the economy. In
addition, the reduction and control of coca production
has also eliminated one of the major sources of
corruption, a dangerous aspect which had become
threatening for both the governance of the nation
as well as open political system.
Economic Performance Update
The entire paper above discusses the various areas
where the Bolivian economy has been given a boost
and what have been the salient areas of economic
development and growth. However, with such promising
policies and the support of world organizations
such as the International Monetary Fund with its
equally supportive programs and agendas, the Bolivian
economy has once again taken recourse and begun
to move backwards. Following are some of the reasons
for this reversal, which has been more than obvious
in the periods after 1998.
Taking a brief view at the per capita income
of Bolivia, one may observe that as of fiscal
year ended 2002, the real GDP per-capita was approximately
900 US dollars. Though this figure is certainly
higher as compared to the levels of 1987 when
it was only 640 US dollars, it is still one of
the lowest in entire South American continent.
Equally surprising are the unemployment levels,
which have risen to 8.5 percent during the last
four years, including leaving more than half the
entire labor force underemployed. (The figures
taken are of fiscal year ended 2002).
The fall in the real GDP per capita and rise
in unemployment levels is said to be attributed
to the sharp fall in the domestic saving and investment
areas of the economy, showing a fall of up to
33 percent. Such has been the weak performance
of the economy that private savings were shown
to take a negative turn taking along sharp declines
in capital account of the balance of payments.
The weak performance of the Bolivian economy
also spread to other areas of the economy including
exports. The share of the nation's export has
not matched with the lax set of policies and open
trading regime that had opened doors for foreign
direct investment and relaxed laws for private
enterprises in various sectors of the economy
including mining, hydrocarbons, and manufacturing.
This has also been reiterated in the above paragraphs.
Instead there is a growing reliance on regional
markets such as that of neighboring Brazil, with
the result that Bolivia's share in the markets
of the industrialized countries has witnessed
a gradual decline.
The impact from reduced growth and increasing
financial pressures, has directly affected social
sector programs, and practically eliminated all
previous efforts for enhancing social sector spending.
Thus, efforts taken in the early part of the 1990s
have not only suffered from these negative growth
and development patterns. It has been estimated
that more than two third of the entire Bolivian
population is now living below the poverty line,
with more than 33 percent of them living in extreme
poverty. Major brunt of these negative growth
patterns in the economy has fallen on the indigenous
people as well as majority of the women residing
in rural areas of the country.
Perhaps serving as a major factor, an increase
at the domestic weaker performance in particular
since 1998 has played a key role in reversing
of the economic growth in Bolivia. Further complicating
were factors such as leaving the macroeconomic
vulnerabilities to re-emerge, as well as the set
backs suffered from an incomplete set of reform
agenda. The result was not surprising, as the
entire Bolivian economy was left to cope with
the number of domestic as well as external shocks.
Included in these vulnerabilities were factors
such as deterioration of public financing system,
failure to curb and control public spending, failure
to restrict fiscal deficit which continued to
rise, all of them combining to raise the non-financial
public sector debt to more than 60 percent of
GDP as of 2002. This was in spite of the introduction
relief measures introduced by the International
Monetary Fund, including its famous 'Highly Indebted
and Poor Countries' debt relief program. Then
there was a more than greater reliance on the
'crawling peg exchange rate regime' which served
as a nominal anchor for the system. This move
disallowed Bolivia from making any room for a
possible maneuver, when faced with an external
shock, particularly in times of regional currencies
realigning their values.
Summarizing some of the measures that should
be taken for the Bolivian government, if it sincerely
intends to bring the nation back on the road to
prosperity, growth and development one may note
that key areas include the restoration of macroeconomic
stability brought about through fiscal stabilization.
Second, there must be a greater need for reducing
macroeconomic vulnerability, which can be accomplished
through strengthening the corporate and banking
sectors of the economy. Third, the Bolivian government
and private sector should join hands and pursue
strategies for policy reforms in a truly 'institutional
environment, accompanied with an increased spending
on social sector reforms. The utilization of natural
resources in an effective manner should also be
taken into account, with sustainable growth and
medium-term as well as long-term growth strategies
as the primary objective of every government sitting
in La Paz. (Morales, 1998).
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