Bolivian Trade and Development, 1952-1987

The most extreme example of the Latin American crisis of the 1980s is given by the Bolivian case. The rate of growth of Gross Domestic Product (GDP) were negative every year in the period 1982-1986, and in 1984-1985, Bolivia suffered from hyperinflation. The economic recovery after a successful inflation stabilization is being hindered by a host of internal and external factors, and is slower than expected. The international debt crisis of the early 1980s had an especially pronounced effect of the Bolivian economy. To this should b added the collapse in export earnings in 1985-1986. However, not only external disturbances explain the onset and the development of the crisis since domestic factors also played a very important role.

Without ignoring the external determinants it seems appropriate to focus on the Internal ones. To many Bolivian observers the hyperinflation appeared to be more than a transitory monetary disarray; rather, to them, it constituted an indictment of the development model followed by Bolivia in the preceding three decades and the culminating phase in the effects of the accumulation of economic-policy mistakes.

The main purpose of this chapter is to provide a long view of economic policy in Bolivia. Bolivia is a small open economy, with a special dependence on a few export products and on a small number of large trade partners. The performance of exports as well as a normal access to foreign financing are crucial to Bolivia's welfare. The other dominant feature of Bolivia's economy has been the size of its public sector. Bolivia's governments have been overburdened with economic functions that they have poorly fulfilled on the whole. The weight of the public sector has unduly affected investment rates and the patterns of foreign trade and indebt ness.