Bolivia tries to rebound. With runaway inflation checked, attention turns to economic growth
La Paz, Bolivia
Having stopped cold a 24,000 percent inflation rate, the seventh highest recorded in world history, the Bolivian government is undertaking the more difficult task of trying to reactivate the economy without unleashing hyperinflation again. In July, the government unveiled a package of measures it says will stimulate investment and output while keeping inflation at the current 10 percent level. The measures aim at boosting exports, which have fallen sharply with the decline in world tin prices.
The country's illegal cocaine trade now generates half its annual $1.2 billion export income. The livelihood of as many as 500,000 people in this country of 6.5 million depends on the flourishing cocaine trade. For now, this economy is ``hooked on cocaine,'' a foreign banker said.
The economic reactivation program lowers industrial electricity costs, cuts railroad fares for exports, and rebates the import tariff on exported goods.
Most important, with an injection of $1.2 billion over the next three years from foreign lending institutions, the government will expand the monetary supply in an effort to reduce interest rates, which range from 24 to 36 percent and have made borrowing prohibitive.
The measures will boost investment and production and thus increase salaries and employment, Finance Minister Juan Cariaga, a 1969 economics graduate from Dartmouth College, said in an interview.
Independent analysts are not as optimistic. Stopping a 24,000 percent inflation rate only requires ending the expansion of the money supply, the foreign banker said. Reviving the economy requires reestablishing confidence again, which is much more difficult.
President V'ictor Paz Estenssoro, who took office in August 1985, halted inflation by stopping the printing presses, which had been printing money full force. At the same time, he decontrolled exchange rates. The Bolivian currency, which was devaluing hourly, stabilized at 2 million pesos per dollar and has remained at that level for the past year.
Mr. Paz, a 79-year-old four-time President, also slashed tariffs and lifted controls on prices and interest rates. To reduce a budget deficit that had reached 25 percent of gross domestic product, he froze public-sector wages, raised state gas prices tenfold, and imposed a 10 percent value-added tax. His economic program is perhaps the most free-market-oriented ever adopted in Latin America - and ends decades of heavy government intervention in the economy here.
The government has kept inflation low by adhering to its strict monetary policy.
``Every day I get a computer printout showing how much money we have,'' said Finance Minister Cariaga. ``If we don't have the money, we don't meet our obligations that day. We won't spend what we don't have.''
He added that the International Monetary Fund's recent forecast that the Bolivian economy will grow by 2.2 percent this year, marking the first growth in seven years, demonstrates that the government's economic plan is working. Yet, the program has also increased unemployment and pushed many companies close to bankruptcy. So while the World Bank and the IMF strongly back Paz, businessmen and the country's powerful labor movement bitterly criticize him.
Businessmen lobbied Paz to include in the economic reactivation plan the restoration of a number of subsidies he had eliminated. But the President decided to stick with his free-market program, which has led business to warn that many companies will go under unless they receive government protection soon.
Labor leaders have charged that the rise in unemployment and the decline in real wages demonstrate that the government favors the rich at the expense of the poor. They have also said that Paz is trying to break the power of the Marxist-dominated unions.
The government's economic program is causing hunger and misery among workers, said Juan Lechin, who has headed the country's main labor federation since 1952. Hurting particularly are the more than 20,000 miners the government laid off last year after the 70 percent drop in tin prices. The state tin mining company, Comibol, gave severance payments averaging $2,000 per miner. But many have exhausted that money.
Thousands of miners fled Potosi, Oruro, and other mining towns and went to Santa Cruz and Cochabamba, Bolivia's second- and third-biggest cities, respectively. But only a handful have found jobs and housing for their families. Other miners were lured to the Chapare, a New Jersey-size tract of jungle that is Bolivia's largest coca-growing zone. In the Chapare, they help process coca leaves into unrefined cocaine that is later purified and smuggled into the United States.
The government so far has kept workers' protests in check. But if Paz's moves don't improve the economy over the next year, diplomats and government officials fear, social unrest could sharply rise and possibly threaten Bolivia's nascent democracy.
For the time being, there's no threat of a military coup, but you never know in Bolivia, a Western diplomat said, noting that the country has had 20 changes of government over the past 33 years.