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Bolivia’s Economy Grows, but Challenges Still Persist

Evo Morales promised a new economic policy based on indigenous principles and an aggressive redistribution of natural resource wealth to benefit all Bolivians when he became the country’s first indigenous president in 2006. Observers wondered how his plans to increase the role of the state in industry would play out, and some predicted foreign investors would be scared out of the Andean nation for good. So how did a president who bucked prevailing economic policy and raised eyebrows globally build the growing economy Bolivia enjoys today?

The Road to Evo

“They were tragic days, because people were killed who were demanding their rights–natural resources, and who with a clear conscience fought for gas, which is national patrimony and can bring us a better quality of life.” —Valentina Jurado, Voices From Bolivian October

Bands of protesters with bandanas fixed tight over their faces to ward of tear gas as they braved gunshots and blazing gasoline explosions became normal for several weeks in the Bolivian city of El Alto in 2003. This was the Andean nation’s Gas War, a conflict that pitted Bolivia’s government, which permitted cheap natural gas exports via Chile, against the people of El Alto, a city of Aymara Indians. Bolivians were tired of seeing their natural resources exported over hundreds of years while the communities those resources came from remained poor and tired of a government dominated by a white elite that seemed out of touch with the country’s indigenous majority.

Nearly 70 protesters died in the Gas War, and one of its political casualties was Bolivia’s president, Gonzalo Sánchez de Lozada, who resigned. A few years later all eyes then turned toward Evo Morales, head of a powerful coca-growers union. In a country where the political winds change in an instant, he was a popular leader with a remarkably durable base of support. In 2006 Morales, an Aymara Indian and former llama herder with only a high-school education, became president of Bolivia. His election was a milestone in a country where prejudice against Indigenous Peoples runs so deep that the word Indian is considered a slur. Morales answered the demands voiced in El Alto in 2003, vowing Bolivia could have a new kind of economy—one based on the concept of vivir bien, or suma qamaña in the Aymara language, a phrase that means “to live well.”

“Capitalism is the worst enemy of humanity. Capitalism and the senseless development of unlimited industrialization are what destroy the environment,” President Morales said during a 2009 interview with Democracy Now! Morales added that the economic policy must change and luxury consumption end. “It’s ending ‘living better,’ which exploits people and means plundering natural resources, which is egoism and individualism. In capitalism there is neither solidarity nor reciprocity. It’s crucial to think of another way of life: in vivir bien, not living better. Living better comes at the cost of others, and at the cost of the destruction of the environment.”

Despite aggressive opposition concentrated in the eastern part of the country, Morales forged forward, backed by portions of the country’s middle class and most of its Indigenous Peoples, who often refer to him as Brother Evo.

Resources for Bolivians

“We don’t want a beggar state—sadly we have been made beggars; we don’t want Bolivia, her government and her economic teams to go asking for alms from the United States, Europe or Asia. We want that to end, and for it to end we must nationalize our natural resources.” —Evo Morales, address to the Bolivian Congress, 2006

During much of the 1990s, international organizations like the World Bank pushed Bolivia to privatize businesses held by the state, a plan now referred to as a neoliberal model. Operations from water service to gas extraction were transferred from the state to private companies in hopes that international investment would jump-start chronically poor Bolivia’s economy.

“There is a predominant view in academics that considers government direct intervention as less efficient than privately run enterprises,” says Diego Vacaflores, an economist and assistant professor at Texas State University–San Marcos. Vacaflores points out that state-owned businesses before the neoliberal reforms were accused of problems with profitability, corruption and political favoritism, while privately run enterprises in Bolivia are often perceived as socially unresponsive and disinclined to reinvest their profits.

The neoliberal plan also included bringing down out-of-control inflation because the country’s currency was rapidly losing value. On the inflation front the reforms were successful, but sluggish economic growth from 2000 to 2005 prompted questions about who benefited from the reforms, especially as they resulted in the elimination of thousands of jobs in state-run companies, according to Benjamin Kohl and Linda Farthing, who investigate economic reforms in their book Impasse in Bolivia. The protests against water privatization in 2000 and the El Alto conflict in 2003 manifested boiling dissatisfaction with the government's pro-privatization stance.

“It’s ironic that past Bolivian administrations were the faithful pupils of neoliberalism,” says Kathryn Ledebur, director of policy analyst group the Andean Information Network. “They followed all the rules, but the results left a lot to be desired and [left] the bulk of the population impoverished. The demise of their political credibility and clout coincided neatly with demands for a new model.”

Morales’s predecessor, President Carlos Mesa, started the transition in 2005, when he pushed a hydrocarbons law that gave Bolivia a bigger share of the industry’s profits. Morales later brought electricity generation and some telecommunications and mining operations back under government control, and he

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pushed for the creation of small state-run businesses.

Following that push, government revenues rose. Some of the new money went toward programs called conditional cash transfers that give money to the elderly, mothers with babies, and children who successfully complete a year in school. Ariel Zabala David, director of planning for the ministry of productive development and plural economy, says these rewards are part of the country’s redistributive economic strategy, and promote the concept of vivir bien. “The cash transfers are created specifically for the neediest people in urban and rural areas…[and generate] development in internal commerce and the internal market,” he explains.

Though the amounts range from about $30 to $350 a year, they can make a difference in the lives of Bolivia’s poor, many of whom earn just a few dollars a day. The government estimates that in 2011 30 percent of Bolivians received a cash transfer.

Exactly how much poverty has decreased in Bolivia since 2006 remains unclear, mainly because of a lack of good data. The Bolivian government estimates that moderate poverty fell nearly 12 percentage points from 2006 to 2011, while extreme poverty fell more than 13 points. However, those figures rely on estimates for 2010 and 2011.

The Oxford Poverty & Human Development Initiative (OPHDI) also saw a reduction in poverty when it analyzed data from 2003 and 2008. That group co-created the Multidimensional Poverty Index (MPI) with the United Nations Development Program, which measures three key dimensions of poverty: health, education and living standard. They found that the MPI in Bolivia fell from 36 percent in 2003 to 21 percent in 2008. “The biggest progress was observed in improvements to school attendance and access to improved sanitation,” said José Manuel Roche, a research officer at OPHDI.

Despite that good news there is still much work ahead for Bolivia, which still has one of the highest poverty rates in Latin America.

Economic Growth and Risks

“In 2007 the neoliberals began to notice that the State was driving and controlling the economy, and it was not the market that controlled the economy as it did under the neoliberal model.” —Minister of Finance Luis Arce Catacora, 2011

Bolivia’s gross domestic product has grown steadily in recent years, averaging a 4.7 percent annual increase between 2006 and 2011, compared with three percent between 2000 and 2005. As many observers predicted, instability in Bolivia in the early 2000s led to a fall in net direct foreign investment by 2005. During the first years of the Morales presidency foreign investors seemed wary, but that appears to be changing: foreign investment hit $859 million in 2011, compared with $703 million 10 years earlier, according to Bolivia’s Central Bank.

Bolivia’s international reserves and trade balance also improved over the past decade. International reserves rose significantly, from about $1 billion in 2001 to more than $12 billion in 2011. The country had a negative trade balance in 2001, but in 2011 exports led over imports to the tune of nearly $1.5 billion.

Hydrocarbons have been selling fairly steadily at high prices and account for a largest chunk of the country’s exports, so a drop in oil prices would hurt Bolivia’s economy. To mitigate its dependence on a few raw material exports, Bolivia is pushing internal demand and striving to industrialize, but a February 2012 Chartis risk assessment noted that, “Attempts to boost industrialization have failed, at least so far, to break Bolivia’s extreme dependency on the export of a handful of volatile commodity exports.”

The Search for Vivir Bien

“A state based on respect and equality between all, with principles of sovereignty, dignity, complementarity, solidarity, harmony and equity in the distribution and redistribution of social product, where the search for vivir bien predominates.” —Preamble to new Bolivian Constitution

“Vivir bien connotes respect for life. Life means living together and asking, ‘Am I going to live throwing things out of order, am I going to live by force? Or am I going to live in harmony and balance?’?” says Fernando Huanacuni, an Aymara Indian who works in Bolivia’s Foreign Ministry. He says vivir bien is a concept all people can understand, a collective as opposed to individual state of well-being that should be taught in schools and embraced by all.

However, for most Bolivians it’s still not clear what the government means by vivir bien, and ideas on what constitutes living well are as diverse as Bolivia itself.

Tensions between different concepts of vivir bien were thrown into the spotlight last year when indigenous groups clashed with the Bolivian government over construction of a road that would cut through their territory in the Isiboro Secure Indigenous Territory and National Park (TIPNIS). Supporters of the road say it will bring economic opportunities to many communities and provide an important link between east and west Bolivia. Many TIPNIS residents say it will open up their land to exploitation by outsiders—including logging, large-scale farming and possibly oil or gas extraction companies—that will damage their way of life.

For some, extractive industry can never be reconciled with the concept of vivir bien. Raúl Prada helped draft Bolivia’s 2009 constitution, but today he is an outspoken critic of the government. “The model for a society of vivir bien is an alternative model to modernity, capitalism and development,” he says. “The constitution’s model is not an extractive model; the government has chosen to continue the extractive model and to continue the dependent capitalism of Bolivian and Latin American elites, which is a colonial imposition.”

Gregorio Vicente, a highlands indigenous leader, says mining and other extractive industries don’t need to end in Bolivia in order for vivir bien to exist, but that they must be conducted in strict accordance with environmental standards and with respect for Indigenous Peoples. For Vicente, success hinges on balance. “For us vivir bien is not just a slogan, it’s wisdom and balance between mankind and the Earth, men and women, everything is dual,” he says. He worries that today the balance between people and the Earth is broken as some extractive projects contaminate both. “If the environment is poisoned, there is no vivir bien.”

Vicente’s concerns point to one of the Bolivian government’s biggest challenges as it moves forward: How to reconcile a growing extractive economy pushing toward industrialization with the principles of balance and concern for the environment and indigenous rights that helped it rise with the support of many of Bolivia’s Indigenous Peoples.