The Economy in Bolivia: Then and Now

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ESPAÑOL Brief history of the economy in Bolivia: During Pre-Colombian times the Western region and central valleys of Bolivia were basically agricultural centres and the pillar of the economy of the Tawantisuyo Empire. Half of what is Bolivia today belonged to this Empire and the region was called the Collasuyo. The Incas had a very advanced agrarian system, cultivating on terraced platforms in the mountains. This however, was not repeated throughout the entire territory as naturally the flat Altiplano (highlands) was apt for cultivating and pasturing and the valleys that bordered the Andes Mountains were very fertile. Additionally, some silver and gold mines were exploited in Oruro (in Paria) and in Potosí (in Porco) but only on a small scale as the Incas did not give mining as much importance as the Europeans.

Once the Colonies had been established, Bolivia, along with Peru, became the jewel of the Spanish crown as between the two they provided Spain 90% of its gold and silver. This would formally inaugurate the mining tradition that persisted through the beginning of the Republican era. The cities that were founded in the country, and those which prospered most, were those that had gold and silver mines nearby, or were located along the commercial mining and transportation route to Lima where these treasures were shipped to Europe. Eastern Bolivia was completely ignored. There were only small towns that practiced subsistence agriculture and cattle ranching. The central valleys, although there was no exploitation of minerals, also prospered due to the fertility of the soil, and Cochabamba became the agricultural heartland, producing food for the entire Colony which, essentially, was strictly a mining Colony and would continue to be even after Bolivia became an independent Republic. It wasn’t until centuries later that the winds turned in favor of Tarija, Chuquisaca and the rest of Eastern Bolivia.

Agriculture: Bolivian Economy

Once it had become an independent Republic, Bolivia continued to base its economy on mining but near the beginning of the 19th Century there was a silver crisis. Sixteen years of fighting against Spain exhausted the country’s economy and proved disastrous to the great mining centers. It wasn’t until approximately 1850 that mining began to recover economically, this time with a new metal (tin) which the newly industrialized world required in great quantities, especially during the World Wars. When it became evident that Bolivia had enormous tin deposits, it became of the largest tin producers in the world. Soon after it was discovered that Bolivia also had extensive saltpeter (potassium nitrate) and guano deposits along its Pacific Coast, and natural rubber in its Northern Amazon Jungles (in what is now Pando and Northern Beni). However, it was never able to fully exploit them as it lost both territories in wars, one against Chile and the other against Brazil.

It also lost a large portion of its Chaco region in another way against Paraguay, but not the area now known to contain oil and natural gas. The search for oil began in 1928 but drilling and gas and petroleum extraction did not begin until after the war with Paraguay had ended in 1935. Through the present, despite the fact that the economy has diversified in other sectors, these two, mining and gas, continue to be the stays of the economy in Bolivia, although just a few decades ago a third economic stronghold was added: agriculture in the Eastern region of the country.

Contemporary economy in Bolivia: During the past two decades, between 1990 and 2012, there have been major changes in the politics and economy of Bolivia. Beginning with the government of President Gonzalo Sánchez de Lozada, the state-owned companies were capitalized: YPFB, the state-run oil and gas company; ENTEL, the state-owned telephone company; ENFE, the railroad; ENDE, the electric company; and several state-owned COMIBOL mines were opened to foreign investment. These changes were met with great resistance from union workers, manufacturers, university students, and teacher, but the government party, which controlled the majority vote in Congress was able to get its agenda approved and repressed several street demonstrations that took place. Thus, international and private national investment was garnered and the 1990’s were, excluding the usual economic highs and lows, a time of relative bonanza, reinforced by the strong North American economy. Total investments, between public, private, national and foreign investments, rose from 12% of the GNP to 14.3%, and foreign investment reached a peak of 12.1% of the GNP due to this capitalization.

Near the end of the decade, between 1997 and 1998, gas pipelines were constructed to export gas to Brazil and Argentina, and this continues through today. Thus mining exports were relegated to second place after gas exports and are closely followed now by soy exports, the country’s third largest export. To date these have been the three greatest Bolivian exports and have moved the power center of the economy in Bolivia toward the East and South, now the country’s principal agricultural and petroleum centers.

During the past decade, and once re-elected, Sánchez de Lozada intended to continue with the same policies and increase gas exports, this time extending beyond South America, and passing through a Chilean port. These projects, and others relating to taxes, angered a portion of the population. He was violently removed from government and the current government, which is leftist, proceeded to swiftly revert the previously privatized companies back to state ownership (referred to as nationalization). Under the present government the economy in Bolivia has grown at a rate of only 3.7% in 2005 and 3.36% in 2009 (although government sources state the growth rate is 4.5%). There are discrepancies regarding the inflation rate as data supplied by the Bolivian Economy Ministry, and those provided by the various chambers of commerce are radically different. The same occurs when one seeks data on unemployment, income per capita, and the public and foreign debt.

Future projections for the economy in Bolivia: The economy in Bolivia is known internationally as being very vulnerable as well as politically and socially unstable; therefore, economic projections by various organisms do not always pan out. However, what can be stated, in general terms, is that large investments would be possible and with excellent perspectives IF they could be included within a legal framework that would stabilize and protect them. In mining, for example, as with gas in the South, there are still huge unexploited deposits that are not yet producing to full capacity. Agriculture is another attractive sector, as are ecotourism and sustainable forest use, just to mention those which could be the most profitable. Unfortunately, Bolivia’s risk index is high and government intromission in industry, plus the lack of legal certainty and rule of law, mean Bolivia is not currently attractive for investment in considerable amounts.

To learn more about the economy in Bolivia and help you decide whether or not to invest in this country, consult this list of references on the economy.

Cost of Living in Bolivia: In general, the cost of living in Bolivia is fairly accessible in comparison to other countries. The national minimum wage is 650 bolivianos (1000 in Santa Cruz), and this is just given as a reference.

Public health insurance is available for basic services in public hospitals and clinics, but not for surgeries, medications and long-term treatments, and these must be paid for y each individual, as must visits to the doctor. The quality of healthcare is variable, but costs much less than in neighboring countries; therefore, their inhabitants frequently visit Bolivia for various types of surgeries. People with special aptitudes, expectant mothers and newborns, children, and people older than 60 receive free public health insurance (Bolivians).

Public education is free, but parents must pay for uniforms and all classroom materials. Education at private schools costs anywhere from $40 to $400 per month, depending on the prestige a schools is deemed to have. State university if free, only materials and a registration fee are paid, and private universities can cost between approximately $460 to $1200 per semester.

The basic costs of food, transportation, housing and basic services and utilities vary greatly between regions in Bolivia. A good source for information is the Instituto Nacional de Estadística website which is what is used as a basis for determining index prices for Bolivian goods and services. In some cases, the government sets minimum and maximum prices for these, or directly owns the companies that provide them.

Since each person or family’s situation is different, if you are looking for more precise or detailed information on the economy in Bolivia or on costs of living, post your questions in our Bolivia forums so other expats can respond and share their experiences with you.

Correspondent: Alura Gonzales

Bolivia Facts | Business | Economy Home Page | Bolivia for Kids

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