Bolivia

There are a number of factors that have contributed to Bolivia being the poorest of all South

American countries. Most of these problems can be traced back to the early 1980's during a time of

government mismanagement, high inflation rates, record unemployment, and severe drought.

Although this economic crisis hurt Bolivia’s industrial and agricultural sectors pretty badly, one

industry flourished during this time - the coca trade.

Coca was the only profitable small farmer crop. A high demand for the drug in the U.S. and

Europe coupled with a disorganized political state allowed for the “coca boom”of the mid 1980's.

Between 1980 and 1986, the production of coca grew by about 35% annually. That is, until the U.S.

sponsored the eradication of this illegal narcotic which was used in 80% of the worlds’ cocaine

production at its peak. This was a huge blow to the Bolivian economy, especially the peasant classes

(Wikipedia).

A second major blow to the Bolivian economy was the decline of tin production in the early

1980's. Formerly the backbone of the Bolivian economy, tin production declined by 30 percent

between 1980 and 1984 and during this time the world market prices also fell by 27 percent. The

mining industry dominated the Bolivian economy from 1557 to 1985. In 1985, however, the

international tin market crashed, and in 1987, tin accounted for only 4 percent of GDP, 36 percent of

exports, 2.5 percent of government revenues, and 2 percent of the labor force. In addition, there were

numerous structural problems faced by the tin industry, including “inaccessibility of the ores

because of high altitudes and poor infrastructure; narrow, deep veins found in hard rock; complex

tin ores that had to be specially processed to extract tin, antimony, lead, and other ores; depletion of

high-grade ores; almost continual labor unrest; deplorable conditions for miners; extensive mineral

theft; poor macroeconomic conditions; lack of foreign exchange for needed imports;

unclear mining policies; few export incentives; and decreasing international demand for

tin.”(http://www.country-studies.com/bolivia/mining.html).

To make things worse, between 1982 and 1983, Bolivia suffered one of the worst droughts of

the century, furthering its economic crisis. A large part of the livestock died as a result, as well as the

reduction in the availability of staple crops. This basically sealed Bolivia’s fate as a country that

would never succeed in substinence agriculture.

In addition to the problem of fluctuating price trends for raw materials on the world market, such

as tin, Bolivia’s economic decline is a result of the lowest rates of savings and investment in South

America (World Bank l998, Pacheco l998 ) Bolivia's investment rates averaged 13.8% of GDP

between l986-l997. Bolivia's neighbors Chile and Peru, on the other hand, have investment rates of

25%