BOLIVIA: New President, Same Old Economic Policy

By Franz Chávez Reprint | | Print |

Analysis by Franz Chávez

LA PAZ, Apr 2 2004 (IPS) - Many of the protesters who took part in the popular uprising that toppled former Bolivian president Gonzalo Sánchez de Lozada last October were hoping for a change in the country’s free market economic policies.

But President Carlos Mesa, Sánchez de Lozada’s successor, has maintained the same economic orientation, with the support of the same parties that were already in power.

The heads of the trade unions and other social groups that staged the month of protests backed the decision to designate Mesa, the vice-president at the time, as the country’s new leader, but on the condition that he change the direction of the government’s economic policy.

The country’s free market policies were adopted on Aug. 29, 1985 through ”decree 21060” issued by then-president Víctor Paz Estenssoro (1985-1989), who relied heavily on the advice of renowned Harvard economist Jeffrey Sachs.

The decree liberalised the exchange rate regime, completely deregulated labour relations, froze wages, raised utility rates and fuel prices, and established a single tariff to favour imports, as well as a long list of other measures that had an enormous social impact, and that came to be known as ”shock therapy”.

The aim was to put an end to four years of shrinking Gross Domestic Product (GDP), runaway inflation, and high fiscal deficits and levels of internal debt, while paving the way for the opening of the market, privatisations and reforms that reduced the role of the state in the financial sector.

Last October, El Alto, a poor suburb of La Paz which has the highest level of urban poverty in this country of 8.2 million, was the scenario of the main protests triggered by the plan to export Bolivia’s natural gas to the United States.

The plan was for foreign companies to export the gas through Chile, with which landlocked Bolivia has a long-standing animosity due to the loss of its Pacific coastline to that country in the War of the Pacific (1879-1883).

The demonstrations mushroomed into a full-fledged uprising, and as many as 80 people were killed when the security forces were called out.

The weeks of protests, which eventually forced Sánchez de Lozada to resign, basically gave voice to the widespread social discontent with the economic policy followed since 1985, which achieved monetary stability in South America’s poorest country, but has failed to generate adequate employment opportunities, or to improve the living conditions of the vast majority of Bolivians, many of whom are indigenous people.

According to the National Institute of Statistics, 65 percent of the population was living in poverty in 2002, and the minimum monthly wage for public employees is just 50 dollars.

For the past month, Mesa has been trying to modify the ”law on hydrocarbons”, which was one of the targets of last October’s protests. His stated intention is to gradually increase the taxes and royalties paid by the foreign oil companies to the state, from the current 18 percent to 50 percent of the profits.

But the submission of the draft law to Congress has been blocked by pressure from the parties that have ruled the country for the past 22 years, and from Spanish, British and U.S. oil companies.

Arguing against an increase in royalties, the oil companies point out that they have invested 3.6 billion dollars exploring for oil from 1996 to 2003, around 450 million dollars a year – almost as much as the 500 million dollars a year invested by the state.

According to the Ministry of Industry, in the 1998-2002 period, foreign direct investment in the country totalled 4.75 billion dollars, led by the United States with 1.7 billion dollars, and Argentina with 538 million.

But that investment has not had a positive impact on the quality of life of the population, and the country must recover its ”independence” from the multilateral lenders and transnational corporations, Rolando Morales, the director of the Centre for Economic and Social Studies-Econométrica, an independent economic analysis firm, told IPS.

The state must also strengthen itself with initiatives for promoting economic growth and development, and it should review the privatisations carried out by Sánchez de Lozada, he recommended.

The Inter-American Development Bank (IDB) itself says the state should assume a leading role in promoting the growth of productive sectors, which in Bolivia would have to include the strengthening of agriculture, technology transfer, mobilisation of credit, land reform and solutions to land ownership problems, and a more dynamic labour market, said the analyst.

Parliamentarian Jerjes Justiniano, a former presidential candidate for the Socialist Party, remarked to IPS that the October 2003 protests demonstrated the failure of the neo-liberal, free market model followed by the country’s traditional parties since 1985.

But five months after he resigned and left political life in Bolivia, former president Sánchez de Lozada is defeating Mesa, said Justiniano, in the sense that the president has had to strike deals with and cede quotas of power to the parties that backed his predecessor.

After failing to push through a reform of the ”law on hydrocarbons” and to create a tax on financial transactions, Mesa met – in order to be able to govern – with the Revolutionary Left Movement (MIR) and the Revolutionary Nationalist Movement (MNR), which offered him their support.

Justiniano said the agreement Mesa struck with the parties was based on promises to allow them to retain a share of control of the country’s public institutions, and on the distribution of important posts in the Supreme Court, the Attorney-General’s Office, the Comptroller-General’s Office, and YPFB, the state oil company.

Last week, the MIR and MNR threatened to censure Minister of Economic Development Javier Nogales, who accused them of demanding jobs in the public sector in exchange for approving the tax on financial transactions.

But the head of the MIR lawmakers in the Chamber of Deputies, Rafael Oviedo, denied that any such pressure had been put on Mesa, and told IPS that his party supports the democratic process.

In Justiniano’s view, Mesa is making a mistake in creating an alliance with the traditional parties instead of reaching a pact with the population, 74 percent of whom support him, according to opinion polls.

”The people are prepared to make a sacrifice, but they expect the government to make some changes to improve their future,” said Morales.