Bolivia: Squeezed Between Alacitas and the IMF
  By David Block

La Paz marks the third week of January with the Alacitas festival, a celebration of hope for the New Year.  Celebrants purchase tiny replicas of their desires-- money, houses and automobiles are especially popular-- and tradition has it that these miniatures may transform, Pinocchio-like, into the real things during the year. The third week in January also marks the height of the rainy season.  Storms roll over the city from the east and douse everyone not under shelter, several times a day.  This year, Alasitas’ dark meteorology was augmented by political storms surrounding the national budget.  As a condition to continued aid, the International Monetary Fund had set clear guidelines on the size of Bolivia’s deficit for 2003, and the government was having trouble finding a formula that would satisfy both local aspirations and foreign bankers.

Bolivia is enduring its third-- some say its fourth-- consecutive year of economic stagnation. The unemployed, together with workers in the informal sector of the economy, i.e., no salary or wages and no benefits, now approaches 60% of the population.  Traditionally, government employment has offered some Bolivians a modicum of insulation from the uncertainties of a shrinking job market.  As in the United States, public employees include the executive, the legislature, the judiciary and all levels of the national bureaucracy.  In addition, the national government pays the salaries of public school teachers and police officers, who are numerous, well organized and losing purchasing power.

The Bolivian President, Gonzalo Sánchez de Lozada, is a year-and-a-half into his six-year term of office.  He governs through a multi-party coalition that accounts for a majority of the 130–seat Chamber of Deputies.  Sánchez de Lozada, referred to as “Goni” by friends and foes alike, has been a strong advocate of free enterprise and decentralization.  During his first term (four years from 1993-1997), Bolivia adopted a new constitution, privatized important sectors of the economy, and devolved some tax revenues and a certain amount of political control to the local level.  Goni has found less space for maneuver in his second term, and with Alasitas in full swing, he announced a 2003 budget proposal distinctly contrary to the spirit of the festival.

Emphasizing the importance of employment, Goni asked Bolivian legislators to approve a reduction in public spending and in the national value added tax.  His proposal included a 2.5% increase in salaries and wages for public employees.  In addition, Goni announced a salary tax (“impuesto al salario”) of between 12.5 and 25%.  These two measures would reduce the budget deficit to the 5.5% mandated by the IMF.

Reaction to the proposals was immediate and unfavorable.  The business community, which would pay the bulk of the salary taxes, the private workforce, which foresaw little employment expansion in the budget, and the national police, whose leaders had suggested a 40% wage increase, demanded the immediate withdrawal of the salary tax proposal, which they branded an impuestazo, or unbearable tax.  On March 10^th, organizations of teachers, peasants, university students, and factory workers announced that their members would demonstrate against adoption of the budget proposal.  In the legislature, only members of the ruling coalition supported the government.  And as if to prove that in politics “my friend is my enemy’s enemy,” Evo Morales, leader of the left-wing Movimiento al Socialismo, held a strategy session with business leaders.

A March 12^th demonstration at center of government on Plaza Murillo, organized by high school students, proved the catalyst to two days of riots in La Paz and lesser disturbances throughout the country. Government in the capital city virtually ceased. The army and the national police fought each other in a pitched battle for the Plaza Murrillo, where 33 people died.  Looters sacked buildings in central La Paz with government offices and political party headquarters receiving particular attention.

In quick succession, Sánchez de Lozada withdrew the impuestazo and then the entire budget proposal. On February 13^th rioting ceased, the national police returned to duty and the army to its barracks. Within a week the government resigned and a new cabinet was announced.  But the issues that underlay the February violence remain.  Conflict between aspirations and market-based economics, difficult for 

Bolivia to manage in the best of times, may prove overwhelming in a period of economic stagnation.

IMF grants loan to Bolivia

(BBC News, 04/03/03)

The International Monetary Fund (IMF) has lent Bolivia $118m (£75m) and  backed off austerity demands which provoked violent anti-government protests.

The money will be welcomed by the government of centre-right president  Gonzalo Sanchez de Lozada, which is reportedly on the verge of collapse.

Mr Sanchez de Lozada does not control Bolivia's congress - a fifth of which  is made up of a left-wing indigenous party which blocks his every move -  and the economy is into its fifth year of recession.

The IMF money comes after Mr Sanchez de Lozada - who has the lowest opinion  poll rating of any South American leader - asked for and received a $10m  loan from the US last week.

The president has close ties with the US, which promised him $150m for a  drug eradication programme when he was elected.

Gun battle

In February, 33 people died and 200 were injured when striking police  officers, protesting against payroll tax increases, and the country's armed  forces exchanged gunfire in the capital La Paz.

Mr Sanchez de Lozada was forced to flee the presidential palace and later  appeared on national television to suspend the tax rise.

The tax rises were part of an IMF programme to reduce Bolivia's budget.

The new one-year loan requires the government to cut its budget deficit to  6.5%, instead of the original 5.5%, from the current 8.75% and does not  require an increase in payroll tax.

In turn, Bolivia has agreed to cut the deficit to 3.5% by 2005, broaden the  base of some taxes, reduce the government payroll and cut costs in the  pension system.

The IMF has offered further cash if the government comes up with a new  economic plan to cut its deficit.

A distant world for which Bush cares little

By Jeffrey Sachs

Financial Times; Apr 09, 2003

President George W. Bush is presiding over the ruin of US foreign policy. A world united against the war in Iraq is only the start, since US diplomatic failure and neglect extend to virtually every area of foreign policy.  Another stunning example lies in the Andes, where the US administration has proved to be incapable of even the simplest responses to a profound crisis engulfing the region. Venezuela's chaos continues, while Colombia's violence deepens. Most recently, the US has looked on as Bolivia, a close ally and a desperately poor, and until recently stable, Andean nation, teeters on the brink of collapse. This is in large measure because of US policies but the administration has not shown the slightest recognition of the incipient disaster it is helping to create.

In recent years, Bolivia made a fateful, perhaps fatal, mistake in implementing a US demand to eradicate coca leaf, which was processed and sold in the US as cocaine by Colombian traffickers. Bolivia complied by reducing coca cultivation other than for traditional uses from more than 33,000 hectares in 1997 to below 8,000 hectares in 2001, according to the United Nations. For about 50,000 peasant farmers and their 200,000 dependants, growing this indigenous crop was simply a means of subsistence in the midst of crushing poverty, not an act of geopolitics

Of course the Bolivian government wanted to get the country out of the narcotics business, just as much as the US wanted Bolivia out, but the Bolivians also understood that eradication without economic alternatives would mean destitution and social upheaval.

Yet such is America's blundering power that it pressed Bolivia to do its bidding without providing for any realistic alternatives. Tiny programs of substitute crops that the US authorities on the ground knew to be wholly inadequate were cynically implemented. Real economic alternatives, especially urban jobs in export-oriented sectors, are a much tougher proposition, given that Bolivia is a mountainous and landlocked country 12,000 feet above sea level. Without major investment in transport, communications and industrial zones, only a few products such as coca leaf can bear the transport costs entailed by this rugged geography.

The political fallout was only too easy to foresee. The peasant coca growers mobilized and nearly secured victory for Evo Morales, their leader, in last summer's elections. The US ambassador in La Paz was especially reckless, intervening in the campaign with a warning to the Bolivians not to vote for Mr Morales, which led to a dramatic surge in his popularity. His party won a fifth of congressional seats and influence over the other parties. US diplomacy did about as well in the Bolivian election as it did in rallying global public opinion on Iraq.

Gonzalo Sánchez de Losada narrowly edged out Mr Morales, returning to the presidency with a fragile multi-party coalition government and facing powerful opposition. As a business leader, senator and then economy minister, Mr Sánchez de Losada was the strategist behind the consolidation of Bolivian democracy in 1985 and the end of its 25,000 per cent hyperinflation. As president from 1993 to 1997 he oversaw further democratic and market-based economic reforms. Yet this time round he inherited an explosive situation, with the Andean region in deep crisis, domestic politics fraught and a shambolic economy. He appealed for $150m in US emergency aid, when several times that would easily have been justified. But the US refused him even this small sum and simply sent him to the International Monetary Fund for lectures on the marvels of austerity.  Events have moved swiftly since then. In January, Mr Morales helped to orchestrate disturbances by the coca growers. In February, as the US looked on, the increasingly desperate government followed through on IMF demands to raise taxes, which precipitated an uprising that has nearly destroyed the government. The police went on strike, leading to an explosion of looting, rioting and pitched battles between the army, police and armed protesters. Unknown assailants tried to assassinate the president. The economy has sunk further towards collapse. Mr Sánchez de Losada urgently renewed his call for help, this time for only $50m. The US has responded with a derisory $10m, in effect inviting the opposition to finish off the job of bringing down the government.

The evidence is clear: the White House and State Department are now so completely disorganized and preoccupied that they are unable to process even the most basic foreign policy measures needed to help stabilize an allied country threatened with collapse as a result of a US-inspired drug eradication effort. The message of US policy failure will not be lost on countries all over the world caught up in drug trafficking - including Afghanistan, where opium production and exports are soaring to record levels. Meanwhile, the Latin America section of the State Department is obsessed solely with making anti-Castro propaganda in order to win votes for Mr Bush among anti-Castro Cubans in Florida in the 2004 election.