Crisis and Economic Policy in the Siles Zuazo Administration

The year 1982 markets the beginning of a long and cruel economic crisis that has not ended yet. All the structural economic problems that Bolivia had been building up since the Revolution of 1952 and especially during the mid-seventies surfaced.1 The situation was greatly worsened by the effects of the world recession of 1981-1982 and the international debt crisis. When the democratic government of President Hernán Siles Zuazo was installed, in October of 1982, the economy was already in a difficult state. Unfortunately, Siles Zuazo was unable to overcome the challenge and, worse, his policies greatly aggravated the situation. Between April 1984 and August 1985. Bolivia experienced the rather uncommon disaster of hyperinflation with very destructive effects on the economy.

This paper documents the main characteristics of the economic problems involved, and the major trade-offs in the political decision-making process during the 1982-1985 period. Although the main emphasis in the Siles Zuazo administration, some reference is made to the economic policies in the beginning of 1982, since it was this period that there was a major impact on subsequent measures and policy design. Some scattered mentions to the stabilization program of August 1985 of Siles Zuazo successor, President Víctor Paz Estenssoro are also made

High inflation was the gravest economic problem that Bolivia confronted since early 1982, it was stopped only after the change of government in August 1985. The effects of high inflation were aggravated by very important losses in employment, production and income. The uncontrolled inflation plus measures to protect some social groups by suppressing its symptoms caused very serious distortions in resource allocation, leading to a significant expansion of an underground economy. To make matters worse, the economic crisis created acute political conflicts, which, in turn, aggravated the crisis.