A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Morales, Juan Antonio Working Paper Bolivian trade and development , 1952 - 1987 Documento de Trabajo, No. 02/88 Provided in Cooperation with: Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana Suggested Citation: Morales, Juan Antonio (1988) : Bolivian trade and development , 1952 - 1987, Documento de Trabajo, No. 02/88, Universidad Católica Boliviana, Instituto de Investigaciones Socio-Económicas (IISEC), La Paz This Version is available at: http://hdl.handle.net/10419/72932 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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The economic recovery after a successful inflation stabilization is being hindered by a host of internal and external factors, and is slower than expected. The international debt crisis of the early 1980s had an especially pronounced effect of the Bolivian economy. To this should b added the collapse in export earnings in 1985-1986. However, not only external disturbances explain the onset and the development of the crisis since domestic factors also played a very important role. Without ignoring the external determinants it seems appropriate to focus on the Internal ones. To many Bolivian observers the hyperinflation appeared to be more than a transitory monetary disarray; rather, to them, it constituted an indictment of the development model followed by Bolivia in the preceding three decades and the culminating phase in the effects of the accumulation of economic-policy mistakes. The main purpose of this chapter is to provide a long view of economic policy in Bolivia. Bolivia is a small open economy, with a special dependence on a few export products and on a small number of large trade partners. The performance of exports as well as a normal access to foreign financing are crucial to Bolivia's welfare. The other dominant feature of Bolivia's economy has been the size of its public sector. Bolivia's governments have been overburdened with economic functions that they have poorly fulfilled on the whole. The weight of the public sector has unduly affected investment rates and the patterns of foreign trade and indebt ness. The chapter is organized as follows. In section I, a short overview of Bolivian contemporary history is provided. Emphasis is given there to the structural constraints. In section II, the scope of government intervention in the economy is examined. The development 1 model based on state capitalism is a main theme in this section. Specific foreign trade and exchange rate policies are analyzed with some detail in section III. In August 1985, the Bolivian government announced a set of very profound economic policy reforms that break away with the traditional pattern. The content and implications of the policy reforms are viewed in section IV. Finally, section V provides a summary of the main policy lessons. 2 I. A Short Review of Contemporary Bolivian Economic History Table 1 and Figure 1 depict the main characteristics of the period encompassed between 1952 and 1987, in regard to growth and over-all performance of the economy. The division in sub- periods in Table 1 is rather arbitrary but conveys some dominant patterns. The sub-period 1953-61 is marked by low growth rates of the economy and high inflation. In 1962, the Bolivian economy initiated a sustained take-off: high rates of growth of GDP and low inflation rates characterize indeed the period. The period 1972-1978 was also of high rates of growth of the economy and low inflation rates, but is differentiated from the preceding period because is featured a rapid accumulation of external debt. The short period 1978-1981 was defined by extreme political instability and by the beginning of difficulties in servicing the foreign debt. The period 1982-1986 covers the economic crisis at its height. Finally, in the recent period 1986-1987, Bolivia has made a successful attempt at stabilization and is fighting hard to achieve economic recovery. The sustained growth over the relatively long period of 1962-1978 was engined by high investment rates, and by availability of foreign exchange. The econometric estimates of Morales (1988) show indeed that investment rates, growth in the capacity to import, and political and macroeconomic stability are the main explanatory factors of GDP growth rates. The capacity to import is given by the sum of export proceeds and foreign capital inflows, computed in constant prices. Ram (1987) finds that export performance in itself is a very significative explanatory factor of Bolivian economic growth, however his results are difficult to replicate. Table 2 shows the main changes in the structure of production that occurred between 1952 and 1987. The most salient aspect in the table is the increase in the share of Services II in GDP. Services II consists principally of the production of non-tradeables in foreign trade. Notice that production in the Primary sector, that comprises agriculture, mining and hydrocarbons, reduced its share in GDP until around 1977. During the crisis years, this share has somewhat increased. The manufacturing sector was greatly affected by the crisis of the 1980s, as can be inferred from the strong fall in its share in GDP. 3 Table 1 Key Indicators of Bolivian Development 1953-61 1962-71 1972-78 1979-81 1982-85 1986-87p Average Annual Rates of Growth (%): - GDP -0.4 5.9 5.4 0.9 -3.0 -0.8 - Population 2.2 2.4 2.6 2.8 2.8 2.8 - Per Capita GDP -2.6 3.5 2.7 -1.8 -5.6 -3.5 - Consumer Prices 56.6 5.1 17.4 32.6 982.7 107.1 - Exports -9.5 11.6 19.5 13.2 -9.1 -14.5 - Import Capacitya -5.9 5.5 8.2 -4.3 -14.0 4.5 Average Ratios (%): - Investment/GDP 15.8 19.0 16.5 14.0 9.1 7.2 - Gross Domestic Savings/GDP 6.1 11.8 18.4 13.3 10.7 -.- - Exports/GDP 13.3 19.7 21.9 18.8 15.3 12.9 - Exports of Tin and Natural Gas/Merchandise Exports 63.5 68.7 56.5 65.9 81.7 73.6 - Current Account - Deficit/GDP -.- 3.1 2.3 7.8 4.8 10.7 - Public External Debt/GDP -.- 36.3 45.2 63.0 80.0 93.2b - Public External Debt/Exports -.- 199.3 194.4 229.5 361.5 516.1b Sources: Basic data from: Central Bank of Bolivia, Statistical Bulletin, Several Issues; UDAPE, Dossier de Información Estadística 1980-1987, La Paz, October 1987; Afcha and Huarachi (1988); International Monetary Fund, International Financial Statistics Yearbook, 1987Edition; and, World Bank, World Debt Tables, 1987-88 Edition Notes: a Import Capacity is defined as the sum of export receipts and long-term foreign capital inflows deflated by import price index b Value for 1986 p Preliminary Table 2 Sector Composition of GDP-Selected Yearsa (Percentages) Sector 1952 1962 1972 1977 1982 1985e 1987e Primary 46.5 39.9 29.1 25.8 35.2 32.2 33.3 Manufacturing 14.2 14.1 14.6 15.9 12.0 9.8 10.8 Services Ib 4.6 5.4 5.4 5.9 4.0 4.2 3.7 Services IIc 34.7 40.6 51.0 52.5 46.2 50.7 50.5 Indirect Taxes d d d d 2.6 3.1 1.6 GDPf 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Ministry of Planning, Revista de Planificación y Desarrollo, 1970. Central Bank of Bolivia, Statistical Bulletin, Various Issues Notes: a Percentages are computed from basic data in real terms b Services I: Electricity, Gas and Water, and Construction 4 c Services II: Commerce, Transportation and Storage, Communication, Finance General Government, and Other Services d Indirect taxes are included in each sector e Preliminary f Basic data on GDP is at market prices Figure 1 Annual Growth Rates of GDP, 1953 - 1987 8 7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 1953-1955 1960 1965 1970 1975 1980 1985-1987 Geography is a very important determinant in the pattern of Bolivia's foreign trade. With a large share of the population concentrated in the highlands, with no direct access to the sea and with few waterways free of natural obstacles, with few roads and railways because the topography of the country causes very steep building costs and transportation costs are very high.