Bolivia's Free-Market Plan Sputters

Paz Zamora lowers inflation, stabilizes economy, but strong growth is missing

HALFWAY through his four-year term as president of Bolivia, former Marxist Jaime Paz Zamora has promised a "crusade against poverty" in his country, considered the poorest in South America.But he also pledges no reversal of his free-market policies, widely applauded by governments and banks, but slammed by critics for favoring the rich at the expense of the poor. "We must apply the same criteria we have used in managing economic stability to implement a social policy," said Mr. Paz Zamora in a recent speech. He called on the whole country to join the "biggest and best fight ever" against the extreme poverty which afflicts more than half of Bolivia's 7 million population. Back in 1985, Bolivia was one of the first Latin countries to adopt neo-liberal measures, now virtually the norm throughout the continent. Paz Zamora's uncle and predecessor as president, Victor Paz Estenssoro, took the advice of Harvard economist Jeffrey Sachs to impose a drastic shock to curb annual inflation of more than 20,000 percent. Dropping the last vestiges of his leftist beliefs, Paz Zamora eagerly inherited the free-market model in August 1989. As head of an unusual alliance between his social-democrat Movement of the Revolutionary Left (MIR) party and the right-wing National Democratic Action (ADN) party of ex-dictator Gen. Hugo Bazner Suarez, Paz Zamora has made the fight against inflation a priority. At only 18 percent last year, and an expected 20 percent this year, Bolivia's inflation rate is the envy of many of its neighbors. Five years of virtually no controls on prices, foreign exchange rates, or imports, have produced economic stability, but no strong growth in economic output. "For the last three years, economic growth has barely matched population growth," admits Paz Zamora. "But today our economy is growing at over 3.5 percent. For the first time in more than a decade, per capita income has increased in Bolivia." Independent economists, however, question how long it will take before the benefits of any growth trickle down to the poor. "Paz Zamora's crusade against poverty is pure wishful thinking," comments Herbert Muller, a former president of Bolivia's Central Bank. "We need to see concrete social policies, and clear indications of how much money he is going to spend on social services, and not the military." Paz Zamora did, however, recently change nearly half of his Cabinet in a move designed to put more emphasis on the social content of his policies in the second half of his administration, analysts say.

Poor left out Still, Mr. Muller complains that health and education services have deteriorated in the first two years under Paz Zamora. A recent World Bank report compared living conditions of Bolivia's poor to those in sub-Saharan Africa. And in its latest annual survey, UNICEF says last near nearly one in five Bolivian children died before their fifth birthday, the worst rate in the continent. The poor may be left out of the economic model, but there is no doubt Bolivia's economic map has changed during the last two years. In June, the government announced it would privatize 60 of 157 state enterprises, thereby putting a seal on more than 30 years of state-led development. Opposition politicians doubt the government's commitment to privatizing the largest state enterprises, the source of thousands of jobs for party militants. But even the country's largest left-wing party, the Free Bolivia Movement, has announced it is not opposed "in principle" to privatization. The government boasts that its major achievement has been to pass three new laws to promote foreign investment, particularly in Bolivia's rich reserves of oil and minerals. For the first time, the original "seven sisters" companies who controlled the world oil market in the 1960s, are all looking for oil in Bolivia. Still, such investment takes a long time to produce results. "Our great problem is lack of time," warns Industry Minister Guido Cespedes. "We don't have a Sendero Luminoso [Peruvian guerrillas] in Bolivia.... On the whole we have social peace, but how long will the poor wait?"

Still dependent on aid Although private investment is meant to be the motor of the economic model, Bolivia remains dependent on chunks of aid for public investment from the World Bank and the Inter-American Development Bank (IDB). Such is Bolivia's favored-nation status that the IDB has allocated Bolivia $352 million in the last two years. Bolivia is also the darling of the Bush administration for the "good example" its policies offer to the rest of Latin America. It currently receives more United States economic aid than any other South American country. US aid is expected to rise from $134.5 million in FY 1991 to about $190 million for FY 1992. About 75 percent of US aid is linked to Bolivia's attempts to curb coca-leaf growing and cocaine manufacuturing, which Muller says absorbs 15-18 percent of the working population. Government officials are hoping for a major downturn in the drug economy as a result of a new "decree of repentence" for traffickers announced last month. Traffickers have 120 days to give themselves up voluntarily in exchange for guarantees that they will not be extradited to the US. So far, three top suspected cocaine smugglers wanted in the US, have turned themselves in. But corruption in high places, and not economic performance or the drug war, is the government's weakest point, analysts say. "What this country really needs is a crusade against corruption," says Ernesto Machicao, a deputy for the opposition National Revolutionary Movement. "It's the No. 1 challenge facing the government." Earlier this year, three senior anti-drug officials, the Interior Minister, the head of the police force, and the chief of the anti-drug police, were all sacked after allegations of links to cocaine money. In July, the head of the state oil and gas company, Bolivia's largest state enterprise, was forced to step down after failing to act against corruption. "There has not been one example of a corrupt person taken to court," says Mr. Machicao. In a recent television opinion poll, viewers were asked to choose one adjective out of nine, both good and bad, that summed up the first two years of Paz Zamora's government. Some 68 percent chose "corrupt."

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