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Thursday, 21 June, 2001, 10:35 GMT 11:35 UK
Bleak future for Bolivia's economy
Street market in Bolivia - © Anouk Gamigues
Street market in Bolivia: The slump is hitting the informal economy
By Andrew Enever in La Paz

Bolivia already is South America's poorest country. Now the nation is sinking ever deeper into the worst economic crisis it has faced since the mid-eighties.

Economic growth
1990-97: 4.3%
1998: 5.2%
1999: 0.4%
2000: 2.4% (estimate)
2001: -0.16% (Jan-Mar)
source: IMF
Factories are closing, unemployment is rising, exports are falling and during the first three months of the year the economy was actually shrinking.

It is becoming increasingly obvious that government efforts to confront the crisis are failing.

A number of events triggered the recession: The knock-on effects from the Asian economic crisis of 1997 and a string of currency devaluations in neighbouring Brazil, Chile and Peru.

Government in denial

But in the view of many analysts the depth of Bolivia's problems has been compounded by government failures to anticipate the effects of these events.

Closed factory in La Paz
Factories are closing down, and thousands are losing their jobs
"They denied the Asian crisis and Brazilian currency devaluation would impact on the Bolivian economy, and when the negative effects began to be felt the crisis had already deepened," says Napoléon Pacheco, president of the Millennium Foundation, an economic think-tank.

"Now they have applied four reactivation plans but none of them have achieved positive results."

The plans, which have all been presented within the past year, have focused on restructuring the debt burden of struggling private companies, to help keep them afloat.

But while legislation for a "reactivation fund" of around $300m is stuck in Congress, the number of companies going bankrupt is increasing.

Calls for subsidies

Critics add that the legislative delay is not the only problem.

Yarn maker René Meyer argues that "we need capital to pull ourselves up and to be able to pay our debts. Under current conditions we will be forced to close."

But in the face of such demands for subsidies, the government is sticking rigidly to its free trade policies of non-intervention.

"We are not able to prevent the closure of factories, this is a private matter and in this sphere we cannot guarantee anything," insists Labour Minister Jaime Alvarez.

Unemployed or underemployed

Inflation
1990-97: 11.1%
1998: 4.4%
1999: 3.1%
2000: 3.4% (estimate)
2001: -0.26% (Jan-Mar)
source: IMF
However, as unemployment continues to rise, so do doubts over whether this hands-off approach can stop the economic decline.

According to an independent labour research unit, CEDLA, a further 70,000 people are expected to lose their job this year. This would push the unemployment rate to 10% of the "working age population", which in Bolivia includes persons aged 10 and older.

In addition it is estimated that 13% of the working population are underemployed, meaning they earn less than the national minimum wage of 400 Bolivianos (about £44, $61) per month.

Many of the newly unemployed will be forced to eke out a living within Bolivia's informal economy, but times are even harder there.

Government plans to eradicate coca crops - the raw material to make cocaine - have the support of the United States, but have cost thousands of jobs.

The government claims it is addressing the problem of unemployment with plans for more local government spending, and a $50m (£35.6m) emergency job creation program.

But critics say that this is simply not enough.

As the economy fails to recover, social conflicts are rising and the government is having to appease an ever larger section of the population.

"This government is trying to gain breathing space," says the Millennium Foundation's Mr Pacheco. "They sign agreements with sectors which have problems, but they do not complete them."

And he points to the political dimension of the crisis. The governments "sole objective", he says, "is to arrive at 6 August 2002, when President Banzer will step down and a new president will be elected. But the problems inside the country are not being solved."

See also:

28 Mar 01 | Country profiles
13 Jun 01 | Business
22 Jan 01 | Americas
Links to more Business stories are at the foot of the page.


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