Campus News

Economic and Political Reform Pave the Way for Stability in Bolivia

Story posted December 10, 2002

The governments and economies of Latin America have in recent years been the subject of news stories in the United States. Just recently there's been news of a bribery scandal in Chile, economic turmoil in Argentina and an oil crisis in Venezuala. Many Latin American nations are struggling for stable market systems and democracies. Though plagued with troubles in the past, in recent years, Bolivia has attained a level of citizen participation in government and stability in the economy that many other Latin American nations have been unable to achieve. At a recent Bowdoin Breakfast, Ronald MacLean-Abaroa explained some of the characteristics that make Bolivia different from other Latin American nations.

MacLean-Abaroa leads a consulting company in Bolivia and is head of a non-profit think tank that promotes citizens' empowerment and participation. He was the first democratically elected mayor of La Paz, Bolivia's capital city, in 40 years, and he served for four terms. He has also held five national cabinet positions and run for president.

Much of the news Americans hear coming out of Latin America involves a burst in populist sentiment in an effort to overcome economic problems. But things are different in Bolivia.

"It's interesting that we managed to elect the richest person in Bolivia, for the second time... He speaks Spanish with a heavy American accent....He's a new liberal at a time that new liberalism is being questioned," MacLean-Abaroa said. "How do we manage to elect a new liberal with a heavy American accent as president of the poorest country in Latin America?"

The answer, according to MacLean-Abaroa, lies in reforms instituted in Bolivia in the mid 80s and early 90s.

About half of the people of Bolivia live below the poverty level. Since breaking away from Spanish Rule in 1825, much of Bolivia's history has consisted of numerous coups. In the early 1980s, after nearly two decades of military rule, a government was elected democratically. The rise of democracy, however, coincided with a period of hyperinflation. MacLean-Abaroa compared it to Germany following the First World War and said inflation was at 26,000%.

"This was just a result of fiscal irresponsibility," he said. "It was destroying the country. Hyperinflation brought us hyper-corruption as well."

MacLean-Abaroa was among those asked by the government to put a program in place that would stop the hyperinflation and stabilize the economy. The effort brought international attention to Bolivia and fame to Jeffrey Sachs, the young Harvard economist who helped bring about the change. Bolivia was the only Latin American country other than Chile to have adopted a market economy, but Bolivia had done it under democracy and Chile under a dictatorship. The economy improved, and law and order returned, but in the end, more changes were needed, Maclean-Abaroa said, which brought about a second wave of economic reforms in the early 1990s. These are what make Bolivia so different today.

Even after the initial reforms, the country's major industries had remained state-owned enterprises. Under new reforms, these industries were privatized.

"But privatization is a difficult concept in Latin America, with a history of state-owned enterprise and a tradition of socialism." MacLean-Abaroa said. Even the Spanish word for privatization is similar to the word meaning "to deprive."

To ensure that privatization would work, Bolivia followed the example of a businessman who had sold interest in his company, but had put the money back into the company to help it run better. Bolivia sold 50% of the control of the state-owned businesses, but created a system by which the remaining 50% of the companies were owned by the Bolivian people.

"We were all shareholders of formerly state-owned companies," MacLean Abaroa said.

At the same time, those in power decentralized the government. Rather than having only one powerful city that was also the seat of the federal government, as is the case in many Latin American countries. Bolvia created a system of municipal governments - 315 of them throughout the country. Then, the government decided that 20% of the national income would also be "decentralized" and distributed to the municipalities on the basis of population, not politics.

Because the country's previous economic crises had been due to fiscal mismanagement, the nation's leaders wanted to find a way to combat this possibility. They did it by creating laws to give citizens control - known as Participación Popular. Many Latin American countries have seen a weakening of civil society, MacLean-Abaroa said, and Participación Popular was an effort to strengthen civil society by giving the people more power and by showing them the benefits of participation.

After so many decades without democracy, it took some time before the people began to behave as though they were living in a democratic nation. Unused to having any say in government, and unused to thinking about anything other than their own needs, it took time for the people to change their perspective. In the beginning, MacLean-Abaroa said, people complained made very specific demands on the government. They seemed unaware of any accomplishments, even is there were occurring in a nearby neighborhood.

Under Participación Popular, the government opened the books and shifted power and resources to the local governments. Once the citizenry about the budget saw what the list of demands, they were able to see the need for trade-offs and prioritizing. They were able to see that perhaps their neighbor's street needed to be lighted, and the new lights for their street would have to wait for the next year.

"Suddenly you have this building of community," MacLean-Abaroa said. "One of the problems with that people only live today, they don't really have a vision of the future."

Giving the people greater countrol over the resources and planning of their municipalities helped them to glimpse that future. MacLean-Abaroa attributes the rise in populism to this same characteristic of poverty. Because people are living for today, rather than the future, they are more susceptible to easy answers and promises that many populist politicians give.

In Bolivia, the sense of community has been growing, and the people understand the difficulties in overcoming these problems, so the people are more willing to listen to a leader whose answers to problems might not come as easily, he said.

Reforms also led to a new national planning system. Bolivia was forgiven some of its foreign debt, and to determine how to spend the money that would no longer be used to pay off the debts, the government held a national dialogue. More than a thousand elected officials were gathered together to determine how to use the money. They decided the plight of the poor was a national problem, and distributed the money to municipalities in relation to their relative poverty level.

Now, after this model, mayors gather together every three years to determine national priorities and how to spend federal money.

This type of citizen empowerment is what's missing from most Latin American countries, according to MacLean-Abaroa.

Despite having come so far, Bolivia's problems are far from over. Every achievement creates new challenges. Bolivia turned its attention to drugs and eradicated 90% of Coca production (the plant from which cocaine is derived). While this was an important priority in keeping the country safe and stable, it also eliminated 10% of the national income, income that was mostly earned by the poorest of Bolivia's citizens.

The current government believes more public spending will help the economy, but MacLean-Abaroa disagrees. He is an advocate of getting more money into the hands of the people to spur the economy. He is in favor of distributing income from the formerly state-owned companies in a "negative tax" as a kind of direct subsidy to the people for them to use on education, healthcare, homes. Increasing the purchasing power of ordinary Bolivians, will help them become more empowered as citizens, he said.

"We are a country in the making and we admire very much the political stability of the United States," he said. Patterning some of these reforms after the decentralized government and market economy of the United States, has so far, helped keep Bolivia on a path that MacLean-Abaroa hopes will lead to stability and prosperity.

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