Daily Archives: October 21, 2012

Bolivian economics 101: The economy in thirty years of democracy

Armando Mendez Morales gives us an exceptional analysis of Bolivian economy vis-a-vis political driven economics, from Pagina Siete:

The economy in thirty years of democracy

On October 10, Bolivians remembered the 30 years of the recovery of democracy in Bolivia. However, so far we do not have a conception of what represents this system of Government. We are talking about representative democracy, which is the dominant conception in the modern world, but also talking about participatory democracy and, even more, of Community democracy.

1978 was the year in which the Bolivian economy had reached its highest peak. We had achieved a horizon of real GDP of 142% more that we had in 1952. That year was when the dictatorial Government of Hugo Banzer was overthrown by another military. From this time until the year 1982, there were nine Governments, seven military and two civilians. It was one of the worst periods of serious political instability that the country experienced in our always convoluted history.

These four years are of importance in the economic life of the country: the year 1979, the economy stalled and began a period of economic recession which then resulted in the worst economic depression that Bolivia lived. In these four years, the economy shrank almost by 5%. Inflation was gushed, with an annual average of 50%.

The democratic Government of Siles Zuazo is today remembered for hyperinflation, the first in the world in times of peace and the first in Latin America. But few people know that it was the period of greater economic depression. From 1978 to 1987 year the economy was reduced by 11%.

The economic situation in the early years of the late 1980s is even more serious if we analyze the behavior of real GDP per capita. While in 1978, it had reached a GDP per capita increased by 33% to which it governed in Bolivia in 1952, the year 1986 represented only 97% of what was reached in 1952. In per capita terms, it confirms the great economic depression.

When the leftist Government coalition led by Siles Zuazo takes over, the annual inflation rate was in the order of 200%. Instead of tackling this terrible situation, and give serious answers, his Government is dominated by populist attitudes, so one of their first poor economic measures is the doubling of the minimum wage. Siles Zuazo failed to finish his term in Office, before reaching its three years, leaves the government. In its last year of Government, the total uncontrolled of the economy is imposed, which reaches a 23,500% annual inflation rate.

The Government of Paz Estenssoro, which replaces the Siles Zuazo, begins the titanic fight against inflation from a set of economic policies that gave rise to the famous Supreme Decree 21060. The year 1987 inflation closes at 10%, achieving to stop hyperinflation and restart economic growth.

Since 1988 up to now the national economy, in per capita terms, has managed to expand at an annual average rate of 1.4%, close to what showed England in the period of the industrial revolution (1800-1850), which was on the order of 1.3%. Far away from the growth per capita rates of the rest of the world. Inflation is never deleted, but remained it controlled at an annual average rate of 8%.

In these 30 years, the actual economic structure has not changed. We are still a primary economy that now represents 28% of the total and a secondary (industrial) sector that does not exceed 25%. But when the same is in nominal terms, the situation indicates that the primary sector rises to 32% in its importance and the secondary sector down to 19%. What does this mean? That the country wins more by devoting to the primary economic activities than from industrial activities.

Other two important facts to highlight have to do with the external sector. The value of exports remained almost stagnant. A total of one billion dollars, amount that had only risen to 1,500 the year 2002 had been reached in 1980. But thereafter showed a steady and notable increase. We will overcome the 10 billion in 2012. Until the year 2002, the Bolivian economy was poor, implying their chronic external indebtedness that could not be paid, so the creditors had to condoned it.

The year 2003 presented a small surplus in current account of balance of payments, which increased in the following years. In 2008 we reached an unlikely surplus in the order of $2 billion. This surplus continues in the following years, although in minor amounts. Today Bolivia is among the exceptional in the region, because it is a surplus country.

The outstanding economic performance of the past seven years is explained by the high value of exports. Today the country is receiving from the sale of gas 5,000 million dollars a year, which allows us to import what we need. Without this amount, the country wouldn’t be in surplus or would not be going through such a good economic performance.

Armando Mendez Morales is a member of the Bolivian Academy of economic sciences.


Crystal clear, the so-called economic success of these last seven years is not attributed in any way to current government economic policies! Such a wonderful and extraordinary high prices of our gas and minerals, along with debt forgiveness is slowly being wasted…