Bolivia: making an omelet without any of the eggs
La Paz, Bolivia
An International Monetary Fund (IMF) official who visited Bolivia last June said: ''The Bolivian government wants me to make an omelet without oil and without eggs.''
On a return visit a few months later he amended his statement: ''Bolivia wants me to make an omelet without oil, eggs, salt, pepper or frying pan.''
The marvel of the Bolivian economy is that it has somehow managed to make the omelets amid a chorus of voices predicting disaster. The current crisis, however , is seen by many bankers here as likely to lead to a major confrontation.
Bankers are predicting political chaos when stiff IMF measures go into effect at the end of the month.
The crisis is the result of several years of government mismanagement and corruption.
Gen. Luis Garcia Meza, who left office last August, ''irresponsibly managed, postponed, and covered up in an almost criminal fashion the economic crisis,'' said one banker here.
The current President, Celso Torrelio Villa, has been delaying the IMF's measures.
The military government controls 70 percent of the Bolivian economy. It has lost millions of dollars of government-guaranteed foreign financing during the past decade.
The private sector is bankrupt. Inflation is well over the official 47 percent and the peso is hostage to ''cocodollars'' from the country's $1.6 billion-a-year cocaine trade.
The central bank has several hundred million dollars in negative reserves, limping through the past year with $250 million granted to Bolivia by Jose Alfredo Martinez de Hoz, Argentina's former economic minister.
The state's four largest enterprises are in poor condition. Of the 15 mines making up the state mineral corporation, only Huanuni makes a profit. The state oil company is in equally tough shape, and of the public services, only the telecommunications is profitable.
Two of Bolivia's most important financial institutions, the Banco del Estado and the Banco Agricola, can't pay their creditors on time. And the country has had to reschedule $172 million in public debts owed to 159 foreign commercial banks.
Bankers and economists trace the current situation to Gen. Hugo Banzer Suarez's 1971-1978 government.
Using three state agencies, the government raised private funds, mostly abroad, and then put the money into major industrial ventures in a country where , except for mining, the total industrial activity consisted of primary food processsing, soft drink plants, breweries, and cement plants.
To attract foreign financing, the government offered virtually unlimited guarantees backed by the central bank.
About a dozen private groups in conjunction with the military, and with the cooperation of international banks, have control of the foreign financing system in Bolivia. They have used the central bank guarantees and attractive financing terms to promote inefficient or fraudulent operations.
The military have taken over industrial operations for which they have no expertise. ''They refuse to pay their debts, are exempt from taxation, and run businesses into the ground to make as much profit as possible in as short a time as possible,'' says a disenchanted economist here.
The Confederacion de Empresarios Privados, an organization of private business leaders in Bolivia, declared in November it wanted to reduce the military to national defense and the care of ''physical and social infrastructure.''
The government angrily responded by saying that ''The armed forces cannot be blamed for the disorder and chaos that the country has been suffering for the past 30 years.''
The Bolivian government is being pushed toward a ''Chilean model'' by the IMF , according to sources in La Paz. The aim is to open the economy, with the industry reduced by international competition to areas of comparative advantage. Public investments are to be limited, and subsidies and controlled prices ended. Foreign borrowing is to be centrally controlled and foreign investments encouraged by a new law.
Monetary policy is to be left to the forces of the market. Instruments such as the legal reserve requirement, interest rates, and central bank credit lines are to be used to balance supply and demand. The peso will be allowed to float on its own level. The unofficial exchange rate is 43 pesos to the dollar, compared with the official 25.
Many observers here feel Torrelio, like most Bolivian presidents, will not remain in office long after devaluation.
The private sector is opposed to the policies. The labor unions, suppressed and officially banned by the government, have called a 48-hour strike to begin when the economic plan goes into effect. Despite government reassurances that the economic measures will not significantly alter prices or production, everyone here is preparing for a backlash.