Face to Face: Bolivia's Growing Pains

On 24 May 2000, the Carnegie Economic Reform Network (CERN) co-hosted with the Inter-American Dialogue a Face-to-Face with Bolivian Minister of Finance Ronald Maclean Abarroa. Mr. Maclean spoke in response to a talk given by former Bolivian president Gonzalo Sanchez de Lozada at the Endowment on May 17.

Bolivia, Mr. Maclean began, is undergoing a crisis, but it is a crisis of success. The pains that Bolivia now feels are not pains from illness, but are pains from growth. Around 18 years ago, Bolivia decided to adopt a new economic model, a western model. Bolivia is mostly indigenous and thus it was hard to build support for this foreign model. Nonetheless, 18 years ago democracy was established, prices stabilized and structural adjustment undertaken. And these reforms have been sustained. Bolivia has continued with many deep institutional reforms; of the judiciary and legislature as well as the customs system. All of this is a big step toward fighting corruption.

Bolivia is now a country in transition. And this, Mr. Maclean said, is the worse place to be. Bolivia has ceased to be an authoritarian country, has ceased to follow a model based on centralism. Now, democracy is taking a hold and people in Bolivia vote individually but with a sense of collectivism. Mr. Maclean said that it must be admitted that it is an oligarchic democracy; the elites in Bolivia do control a lot. But, he says, Bolivia is now undergoing decentralization. It has come a long way. Yet, the people still look to the state for all the solutions; people think it is more centralized than it is.

Currently, the central government is very restrained in its capacity to invest in projects because much more money and responsibility has gone to the municipalities. The Public Participation Law of 1995 created a new, decentralized Bolivia. To extend this the current government has created the National Dialogues. Politics at the national level are decreasing in importance. And with this comes the end of oligarchic democracy, Mr. Maclean said. Politics are much more led by municipalities and local mayors than it ever has been before. So this, Mr. Maclean said, is the transition. And because of it, Bolivia is suffering growing

pains. But it is doing well; Bolivia is not ill.

The challenge today is to build a new constituency for change. This will be a fight since there are many who are against reforms, including old corrupt officials, labor bosses, coca growers and even some entrepreneurs who want protection from competition. Bolivia, said Mr. Maclean, needs to build a new political class.

Bolivia has many wars ahead of it, Mr. Maclean said. The first fights is the fight against corruption. On this count, there is a lot of opposition, even from Mr. Maclean?s own party. People are used to corruption and they all want a piece of the power.

The second war is the war on drugs. So far, the government has made good inroad to reducing illegal coca production, and Mr. Maclean says it aims to continue with this success. He recognized the reduction in coca production is the equivalent of

extracting 3-5% of the economy. This, plus the cost of pension reform (another 3%) has affected the economy and hurt the poor.

The third war is the war on poverty. This is a long and hard struggle, with no quick fix. Currently, Mr. Maclean said, there are too many intermediaries. It would be best, he said, for the central government to rely on local governments to carry out poverty reduction. Decentralization has the potential to really improve incomes in the rural areas, where most of the poor are.

It is against this backdrop that the issue of water came to a head in April. Mr. Maclean argued that the war over water is not a sign that the government, democracy or the market has failed. Two interrelated issues are important, he said. First, there had been a water project in Cochabamba. The entrepreneur who won the bid for the project discovered after beginning that it required more money than he had anticipated and when the difference was not covered the project was abandoned. This was quite simply a local business problem.

In the 1980s, the mines in Bolivia were closed and the miners were sent to the rural areas. Many of them became coca growers and made a good income. Their children, the next generation, are used to a fairly decent standard of living. After the government began with the eradication of coca, these families migrated to Cochabamba. They were strong and motivated, Mr. Maclean said. The media in Cochabamba mobilized the 20,000 peasants, creating a timebomb that was ready to explode with the increase in the price of water.

The Banzer government declared a state of emergency that lasted twelve days. (The former government, Mr. Maclean said, declared states of emergency that equaled six months.) The government has been accused of not being tough enough. Mr. Maclean defended his government saying that in order to it to have been tougher, they would have had to kill people, which is completely unacceptable.

The solution to the water problem will only come after the whole situation has been rethought and new ideas are on the table. The current government, Mr. Maclean said, insists however that the solution come from the people of Cochabamba, so that they can recognize and overcome the difficulties as well as build the public support that is crucial to such a project.

The session ended with a question and answer period.

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

www.ceip.org

Economic Reform Project Vol II, No 6, May 2000