Notorious for its history of military coups and coca cultivation, Bolivia is deemed of little consequence to a world mired in debt, growing protectionism, and apprehension over the restructuring of the global system.
But tucked away between the majestic Andean Mountains and the vast Amazon River Basin may lie one of the most dramatic examples of the revolutionary impact that the sudden introduction of unadulterated liberal reform can have on an economy nearly choked to death by decades of State intervention. In 1985 La Paz's inauguration of the deceptively benign-sounding New Economic Policy (NEP) launched the world's fiercest assault on inflation and economic stagnation as well as their source--the government leviathan.
In a matter of months, the NEP squashed hyperinflation to near 0 percent, slashed the government budget deficit from almost a third of gross domestic product (GDP) to under 4 percent, eliminated all price subsidies, gutted money-draining parastatals, liberalized trade, and freed the currency exchange rate of allowing the ailing peso to crash to 7 percent of its previous value.
Since then, the Bolivian economy has grown 2 to 3 percent in each of the past two years, after contracting for six straight years; inflation has steadied to around 15 percent per year; part of the $4.9 billion foreign debt has been retired; and the whole statist tradition has been discredited in favor of the free market, setting the stage for renewed economic development. Most noteworthy, Bolivia--unlike neighboring Chile--underwent its economic metamorphosis without sacrificing democratic rule.
In fact, Bolivia had emerged from military dictatorship only three years prior to the implementation of the NEP. Decades of political instability (175 changes in government in its first 162 years of independence) and economic mismanagement by the military had left the country in a State of paralysis--with inflation raging at an annual rate of 200 percent, high unemployment, food shortages, and bankrupt state coffers.
The election as president in 1982 of Hernan Siles Zuazo, of the leftist National Revolutionary Movement of the Left (MNRI), generated anxious hope. Optimism quickly gave way to widespread discount, however, as the Siles government failed to turn around the flagging economy. The perception of the government's ineptitude was reinforced by its impotence in the face of nationwide strikes called by the communist-led Workers Union (COB).
Siles had promised to wage war on the economy, but he suffered total defeat. Inflation spiraled out of control at an accumulated rate projected to reach 48,000 percent by the end of 1985--the "seventh highest rate of hyperinflation since the invention of paper money," according to Juan Cariaga, a former minister of finance. Even more revealing, from 1980-85, the economy shrank by 23 percent. Hyperinflation had completely debilitated the nation's economic fiber, and old forms of barter trade replaced the money economy. "Absolute chaos" reigned, according to Carlos Delius, Bolivian ambassador to the United States.
Return of the 'messiah'
Although it was the first time in 160 years that Bolivia had
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