|Bolivia Table of Contents
Three major factors--reduced access to international capital, domestic economic instability, and a drop in commodity prices-- greatly disrupted Bolivia's balance of payments during the 1980s. As the structural weaknesses of the economy became more apparent in the late 1970s, foreign banks scaled back their loan commitments. This trend was exacerbated by the general economic chaos that reigned during the first half of the 1980s. Recession and hyperinflation discouraged new foreign direct investment, and policies that attempted to eliminate the predominance of the United States dollar in the financial sector spurred capital flight. Weakening commodity prices shrank export revenues, causing a negative trade balance after 1985. Fortunately, however, multilateral and bilateral sources provided Bolivia with generous amounts of financing to meet its shortfalls and allowed it to sustain international economic transactions.
Bolivia experienced persistent deficits in its current account during the 1980s, primarily as a result of a large chronic debit on the service portion of this account and significant trade imbalances after 1985. From 1980 to 1985, the current account deficit equaled approximately 10 percent of GDP, or about three times the shortfall of the previous fifteen years. The last current account surplus occurred in 1973 and was the result of oil price windfalls. In 1987 the negative balance on the current account stood at nearly US$488 million, more than any other year in the decade. Although trade was expected to improve slowly, the outlook for a reversal of the current account deficit was not bright.
With the decline in new foreign direct investment and private financing in the early 1980s, the capital account was negative every year from 1982 to 1987, except for 1984. Overseas investment in Bolivia from 1983 to 1987 averaged a mere US$11 million, a consequence of the poor macroeconomic climate, unclear positions on regional investment rules, the lack of a new national investment code, and an unfavorable history of relations with the foreign private sector. The only significant inflows into the economy during the 1980s were from international sources like the IMF and the World Bank, along with multilateral and bilateral creditors, whose balance of payments support propped up the economy. Although foreign exchange reserves dropped in the 1980s, special financing from international public institutions and the nonpayment of Bolivia's commercial debt after 1984 limited the degree of damage. Central Bank officials reported that gross reserves at the end of 1988 totaled US$404 million and net reserves, US$181 million. Bolivia, however, did maintain over US$300 million in gold reserves, and those reserves were mounting.
Source: U.S. Library of Congress