The Economy

Bolivia Table of Contents

BOLIVIA, A RICHLY ENDOWED country, contained a mostly poor population. Despite abundant and diverse metal and mineral deposits, substantial hydrocarbon reserves, vast untapped fertile plains, dense virgin forests, and numerous swift rivers with great hydroelectric potential, the country's gross domestic product in 1987 was only approximately US$4.35 billion. Its per capita income of US$640 made Bolivia the poorest nation in South America. The economy's slow development stemmed in part from the country's rugged and varied terrain, inadequate infrastructure, lack of direct access to international markets, and underpopulation. In addition, an endemic and debilitating political instability often corrupted and derailed the economic development process.

Bolivia experienced two major revolutions in economic policy during the second half of the twentieth century, both of which were led by Víctor Paz Estenssoro (1952-56, and 1960-64, 1985- 89). In 1952 Paz Estenssoro's Nationalist Revolutionary Movement rose to power and supplanted a political system dominated by the narrow interests of three tin-mining families and a landed oligarchy. The Nationalist Revolutionary Movement attempted to reverse the gross inequities that had evolved under the previous order. The central economic tenets of the revolution were land reform, the nationalization of the tin mines, labor rights, and a leading role for the public sector.

In the ensuing decades, however, Bolivia's public sector swelled far beyond the economy's ability to sustain it. Although external development financing reached an unprecedented level in the 1970s, it was sharply curtailed by the end of the decade. Servicing this debt severely strained the economy in the 1980s and contributed to a decline in total output of over 4 percent a year between 1980 and 1986. Hyperinflation made the currency worthless by the mid-1980s. When Paz Estenssoro again assumed the presidency in 1985, he introduced a stabilization plan, backed by the International Monetary Fund, that was unmatched in its austerity and in its attempt to totally restructure a Latin American economy toward market mechanisms.

Mining dominated the economy from colonial times until the 1985 crash of the international tin market. Natural gas replaced tin and other minerals in the 1980s as the leading export and was the hub of future development strategies. Agriculture employed nearly half of the official labor force, and government policies favored increased diversification toward manufactured agricultural products. In the late 1980s, an underground economy based on contraband, coca production, and other commercial trading in the informal sector also thrived. These unregistered activities, employing two-thirds of the work force, totaled more than the official international trade.

Bolivia's economic upheavals in the 1980s were costly to workers, producers, institutions, the national currency, and the economy at large. Although a moderate recovery of 2 percent in real growth in 1987 and 3 percent 1988 had begun, both mediumterm challenges and long-term structural obstacles faced economic policymakers. Debt was particularly well managed but remained one of Latin America's highest on a per capita basis. Foreign investment, an important component of the stabilization plan, had still not materialized, and political stability remained tenuous. In the late 1980s, many Bolivians remained skeptical of government, which they viewed as tied to a history of corruption, high salaries, and incompetence.

For more recent information about the economy, see Facts about Bolivia.

Custom Search

Source: U.S. Library of Congress