Face to Face: Bolivia's Fragile Miracle

Gonzalo Sanchez de Lozada, former President and Minister of Finance, Bolivia

On 17 May 2000 the Carnegie Economic Reform Network (CERN) hosted a Face-to-Face with Gonzolo Sanchez de Lozada, the former president of Bolivia and architect of Bolivia's stabilization and adjustment reforms of the mid 1980s. Mr. Sanchez de Lozada is a member of CERN.

Rather than talk about the reforms done under his administration and when he was minister of finance before that, Sanchez de Lozada said that he preferred to talk about the future and the challenges of winning the next election. But, he is worried that democracy is weakening and is concerned that it will be difficult to have a fair election. Bolivia, he said, is a fragile miracle. There has been a general social consensus in the last fifteen years, since the transition to democracy and considerable economic reforms began. But this social consensus is now under question. Very deep and unsettling problems have arisen, as manifested in the April eruption in Cochabamba district over water.

The increase in the price of water was a spark that ignited a larger problem, Mr. Sanchez de Lozada said. Cochabamba is in desperate need of a regular source of water. His administration offered a workable solution under his capitalization plan, as one of these newly capitalized firms could have been persuaded to provide water to the region. This solution, however, was blocked politically. There was very little solidarity or communication on this issue, especially within the explosive context of recession and deflation. The new coalition government under General Hugo Banzer never made it a priority to sit down with local actors and the private sector to discuss the problem and its resolution. So there was a loss of confidence and a loss of authority, and the new government was unable to react with enough speed or force when the problem came to a head in April. People found that they could undermine democracy and make changes by demonstrating in the streets and make the government back down. Banzer implemented a state of emergency only after it was too late, Sanchez de Lozada said, and when he did he found that the police had gone on strike for increases in pay. When the strike proved successful, the army and other civil servants demanded pay raises too, further eroding the authority of the government and its ability to respond to the situation.

The Banzer government failed to continue many of the reforms that came out of Sanchez de Lozada?s administration. Banzer received only 23% of the vote, but put together a coalition that would control 75% of the congress. This coalition, Mr. Sanchez de Lozada said, impeded his ability to implement reforms. Thus, Banzer weakened his own government and was unable to continue with reforms or deal with the crises that were to emerge.

Now, the survival of the second round of reforms that began under the Sanchez de Lozada government are in question. The Popular Participation Law and the Administrative Decentralization Law have been neglected since being passed. The laws will survive, Sanchez de Lozada said, but they are suffering from a lack of the fine-tuning and consolidation needed to be effective. Though many of the reforms remain in name, their credibility is in jeopardy. For example, the pension reform was stopped and pension payments were suspended, although this is now being fought in the courts.

The process of capitalization created a growth machine through increased investment, from both the private and public sectors. This created the feeling that Bolivia would not be affected by external shocks, but it suffered severe impacts of the Asian Crisis.

Bolivia had enjoyed the overvaluation of the Brazilian real, and other currencies in its neighborhood. But with the devaluation in Brazil, Bolivian exports fell sharply and imports from Brazil rose. In addition, Brazil, Chile and Peru all increased trade protection and reduces Bolivia?s access to their markets.

Sanchez de Lozada argued that Banzer was not ready for this crisis. First, he denied that it would affect Bolivia, then his government said prematurely that the crisis had passed, whereas the people of Bolivia were still feeling its effects. The Banzer government continued to blame the Sanchez de Lozada government, he said, instead of taking steps to minimize the damages.

Mr. Sanchez de Lozada argued that the problems over water and the failure to continue reforms hint at a breakdown of democratic institutions. The legislative process is no longer effective; once Congress passes a law, the people who oppose it know that they can riot in the streets and change that law. Mr. Sanchez de Lozada said that his biggest concern now in Bolivia is with rebuilding confidence in the credibility of democratic institutions. Though Sanchez de Lozada hopes there is no coup, he is worried that democracy is failing in Bolivia. He is worried about honest elections and thinks that steps need to be taken to guarantee fair elections and progress in democratic institutions. He said he does not want the things that are happening in the rest of the Andes to spread to Bolivia.

Mr. Sanchez de Lozada concluded by saying that he hopes he is wrong with this pessimistic outlook. He hopes that Bolivia can once again find consensus, and that Bolivia can once again be a miracle, if even a fragile one.

The session concluded with questions and answers.

Marygold Severn-Walsh

Junior Fellow

Carnegie Endowment For

International Peace

1779 Massachusetts Avenue, NW

Washington, DC 20036

Phone 202-483-7600

Fax 202-483-1840

Bolivia's Fagile Miracle- Economic Reform Project Vol II, No 5, May 2000