User:Gonzalezmwalter/IMF Bolivia

Bolivia joined the IMF on December 27th, 1945. Since 1984, Bolivia has been an active client for the fund, accessing 19 credit lines with the fund since joining . Its current quota totals SDR 126.2 million, equivalent to $173 million USD. Currently, the country has no outstanding balance with the IMF, as the country is pulling away from what they claim as foreign control of their economy.

Map of Bolivia

Bolivian Economy and the National Revolution of the 1950's

With the overthrow of the mining elite, who dominated political life in Bolivia, the new government had the task of reorganizing the economy,in turn they decided to create an economy that is fair, therefore increased spending on public programs, plus nationalized key industries, like mining, and oil.

This generated growth in the economy, as commodities like tin, were paid well and were necessary for the creation of finished goods in other states, therefore frequent customers.

Bolivia's Economy from the 1960's to the late 70's

High government spending and an influx of foreign capital as well as actual growth, allowed the Bolivian economy to have impressive growth rates. By 1974, there is a surplus of 8.5% in GPD, mismanagement of growth by failing to re-invest int he economy causes future problems for the state.

Instead of funding economic activities, the state continued to expand its public spending, amassing large amounts of foreign debt. As the economy is not strong enough to fund these programs, the government turns to foreign loans from banks and public institutions.

Apart from deficit-financing, Bolivia remains overwhelmingly dependent on commodity exports, where Tin and Silver dominated. Making the state highly susceptible to market changes.

Late 70's trough the 1980's; the IMF's initial approachment

Due to high public spending by the government, the Bolivian economy begins to spiral. A decline in tax collection and the accumulation of foreign loans forces the state to find alternate ways to finance the deficit. The government responds by printing out large sums of money to finance deficit, which leads to high levels of inflation, by 1985, the inflation was around 11,750 percent .

This is turn creates more problems, as citizens are unwilling to hold to the Bolivian Peso due to instability of its value. Bolivian banks begin to pay out in dollars, as citizens feared the peso was worthless as it's value fluctuated with an unpredictable market (FIND A SOURCE FOR THIS). The government is no longer in direct control of the country's currency, in order to slow down inflation, the government attempts to devalue the Peso , and imposes Dollarization programs to buy back the foreign capital and replace it with pesos. This however has little success. instead black market premiums surge and inflation continues to grow(SOURCE).

During this time period we saw a sharp decrease in the price of non fuel commodity goods, such as tin. Bolivia's economy remains reliant on commodities, therefore a decrease in pricing will destabilize the economy . There is a 10% decline in real GDP from 1980-85.

After the Bolivian government expelled its executive in 1978, the IMF and Bolivia began contracting a potential plan to restableize the economy. The IMF however pulled out, as they did not believe that the government was strong enough to enforce the changes needed to revitalize the economy.

IMF Intervention and Reforms from 1985-1998

With a deteriorating economy, high debt, and high inflation, the Bolivian state had no choice but to turn to the IMF. Under the Structural Adjustment Facility (SAF), the IMF approved a deal on June 19th, 1986 that aimed to help stabilize Bolivia's economy . Apart from repaying the $96,800,000 loan, Bolivia was asked to reduce government spending, liberalize the economy by opening up trade, raise exports and reduce imports, and regain control of the inflation. Bolivia was more or less successful in the implementation of most programs, even went as far as declaring a state of siege in order to keep control of the economy when opposition became strong.

Through this time frame, the IMF continued to lend large amounts of money to the Bolivian state, through the General Resources account as well as through the Poverty Reduction Trust, that lends only to the poorest member states of the IMF. These loans were used to stabilize the Bolivian economy by providing much needed capital to repay private loans, as well as revamp crucial economic practices.From 1985 to 1999, the IMF has lent Bolivia around $458,093,000 SDR in combined general loans, and through the Poverty Reduction Trust.

Debt Relief of 1996

Poor indebted states like Bolivia have struggled to Balance it's Payments due to a high number of loans, both private and public. The need to keep good credit to access new loans, to pay back old loans makes a cycle that keeps these states indebted. In 1996 the IMF and World Bank created the HIPC Initiative (Heavily Indebted Poor Countries), that aimed to lower the high debts acquired by the poorest states in the world . Bolivia qualified for success adjustments and was able to forgo a portion of its debt, being one of the nations that benefited from such program.

On September 9th, 1997 the IMF approved Bolivia's debt relief program by relinquishing around $428 million of Bolivia's external debt. The conditions to obtaning such debt relief are similar to IMF conditions of loans, the state must continue to work at bettering its Balance of Payments and regulating inflation.

Outcomes of IMF Intervention (1986-1998)

By 1990 IMF programs had successfully reduced 12 month inflation to 18%, by 1997 the government had reduced inflation to 7%. An admirable feat, as at it's peak in 1985, inflation was an amounting 23,500%. IMF intervention increased Bolivia's credit worthiness, as well as foreign investment, allowing for moderate growth throughout such timeframe.

Effects on the People

The programs by the IMF and the Bolivian government affected a large portion of Bolivia's poor, in order to better conditions, the government planed to increase spending on education, health care, improve the efficiency of governmental programs, and better the education system by paying teachers based on their merit, to increase the quality of instructors.

Bolivia and the IMF 1999-2005

The Bolivian economy was on its way to become more or less stable, however IMF involvement was not yet finished. In this time period, the IMF disbursed around $139,536,500 SDR in loans, aimed to continue the progress created by previous programs.

Strategy of Reforms

The strategy was to continue to reduce inflation, reduce poverty by increasing spending in social programs, privatize all remaining government owned companies, decrease participation in the informal economy, and better governmental institutions such as the judiciary branch.

Another crucial part of the second phase of reforms was to increase reserves of foreign currency. A major problem of the 80's was that they simply had no foreign currency to repay debts, spiraling them into further debt, the IMF initiative looked to stop this from happening again.

Reforming the Tax system was another goal of the Bolivian government, modernizing the tax system to improve the liberalization of domestic markets was crucial to continue repaying back lefty loans as well as keeping up with spending on social programs. An important feature was phasing out the financial transaction taxes that affected business transactions in Bolivia, as well as increase the efficiency of the tax collection system.

Outcomes of the 1999-2005 Reforms

Although inflation and positive growth was standard throughout most of the 1990s through the early 2000's, overall IMF policy did not lead to a complete turn of the Bolivian economy.

What caused the failures of the programs

Blame for the shortcomings of implementation of programs can be attributed to both the IMF and the Bolivian government. The Bolivian government remained inefficient, and unwilling to impose unpopular reforms, the government also struggled with corruption and political interference by the people and opposition to the reforms. The IMF however also failed to force the state to implement all proposed programs, and increase government productivity by forcing the state to implement legislation that would create a more efficient state.

The IMF's failures of forcing the state to comply with previously agreed programs reaches peaks starting 2001 trough 2004, were a large number of points in the performance criteria are not met, compared to the previous years where most if not all reach minimum satisfactory remarks.

Consequences of Failing to implement such programs

The Bolivian economy stops it's 4% growth trend and begins to contract, by 1999 growth in GDP is reduced to .4%. There is a sharp decrease in foreign investment by 30%, as well as an increase in foreign debt. Debt increases from 41% of GPD in 2001, to around 73% at the end of 2003.

Bolivia and the IMF 2006 - Current

With the victory of the indigenous leader Evo Morales, the state saw the opportunity to claim independence from the IMF. No new arrangements have been made with the IMF since 2005, Bolivia however continued its battle with reducing poverty as well as balance out the economy. Without the IMF's support, Bolivia's GDP and Foreign revenues have grown steadily, GDP has grown consistently at around 4.8% from 2004 to 2017. Growth however, has not been supported by a similar programs prescribed by the IMF, instead the state has once again nationalized key industries and kept up with social spending to improve the lives of its citizens, in turn reducing extreme poverty.