Bolivia's civil society organisations united in the Platform of Action Against Poverty demand the unconditional debt relief to this country. Bolivia is a beneficiary of the debt cancelation promoted by G8 and approved by IMF and WB, but the conditions of this resolution make it insufficient.

For almost 20 years, Bolivia has been applying structural reforms, closely monitored by the International Monetary Fund (IMF), World Bank (WB) and Inter-American Development Bank (IADB). These reforms were promoted under the so-called Washington Consensus and emphasised market liberalisation, generating a favourable environment for attracting direct foreign investment, the privatization of public companies, and the orthodox balancing of fiscal accounts (public expenditure cuts and increased consumer and other taxes).

The reforms had several consequences, none of which was positive: a fragile economy, highly sensitive to external shocks; a productive sector brought to a standstill, with only a few isolated international raw material markets and scant links with other sectors of the Bolivian economy; a weak State, both in terms of its institutional nature and its fiscal balances, which, in turn, affects its capacity to respond to its internal problems; a predominantly poor population (64 percent) with high levels of unemployment and underemployment (11 percent and 60 percent of the economically-active population, respectively, in the urban area).

The Bolivian State’s fiscal fragility is an essential element in understanding its indebted condition. Fiscal reforms have resulted in the income-expenditure gap being similar to that experienced two decades ago: Bolivia is the country with the highest fiscal deficit in Latin America, with a deficit of almost 9 percent 1, only slightly less than the deficit prior to the reforms (just over 10 percent in 1985).

This situation is the result of a volatile income structure, in which the main source of revenue is a tax system that is regressive and fragile because of structural reforms, such as the privatisation of public companies 2. For example, between 2000 and 2004, the business of extracting natural resources – most of which is in the hands of multinational companies – exported more than $1,500 million in investment returns, about 44 percent of the direct foreign investment (IED) perceived by Bolivia 3 during the same period.

The reforms, therefore, have caused the Bolivian State to depend, not on its real income – which is now exported as profits for the private ventures of multinational companies – but on consumer tax and donations and concessional loans form developed countries and multilateral cooperation organisations.

Foreign debt: a vicious circle

The growing social demand for better living conditions, the weak economic activity and the acute fiscal crisis forces the government to annually assume new public (fiscal) credits.

Foreign debt servicing – to the degree of no less than $250 million in recent years – is one of the most important reasons for the inflexibility of public expenditure and, as a result, the restricted use of public funds. In 2004, the cost of servicing the foreign debt represented slightly more than 11 percent of the total public revenue.

In the face of the burden of the foreign debt, international funding organisations and institutions have designed different mechanisms for reducing the outstanding balance (reprogramming, remission, repurchase), with little or no effect. In the first seven years of the Heavily Indebted Poor Countries (HIPC) initiative alone, Bolivia has received $682.8 million 4 in debt relief. However, this amount is insignificant compared with the $3,490 million in new loans contracted between 1998 and 2004.

This paradoxical behaviour of the foreign debt is explained by two key elements: (i) every debt remission or renegotiation process has been accompanied by a series of structural reforms and agreements between the State and multilateral organisations like the IMF and the WB, under conditions reflected in letters of intent, aid strategies and long-term agreements, like the Poverty Reduction Growth Facility; (ii) the burden of the debt is just one more element within an economic, social and fiscal structure in crisis. In other words, the constant reproduction of levels of fiscal deficit is the result of a development model that has weakened the State. Therefore, although Bolivia receives debt relief, the reform factors associated with that process generate other problems in the economy that maintain or exacerbate the fiscal situation. As a result, the country is forced to keep resorting to new loans, reproducing a vicious circle of debt contraction, which can only be broken if the lending countries and international organisations stop setting the conditionalities for debt relief. Only then will Bolivia be able to independently design its economic policies based on greater control of the revenues from its strategic resources.

The G8’s announcement about cancelling World Bank, IMF and African Development Bank debts could become yet another pretext for political and economic intervention in the selected countries.

This debt remission will have the following effects on Bolivia:

-> The debt with the World Bank and the IMF in April 2005 was just over $2,000 million, representing 41 percent of the total foreign debt of about $ 4,900 million. The remission, therefore, will not be of 100 percent of the foreign debt.

-> The foreign debt balance/GNP ratio makes Bolivia a heavily indebted economy. With the promised debt remission, this ratio falls to 39 percent. Bolivia, therefore, would once again be able to access new loans which – without having resolved its capacity to produce real new revenue – will lead the country, in the short-term, to repeat the debt cycle.

-> The relief is limited if we consider the interests and payments associated with the debt. For example, when applied to the $277 million paid to service the foreign debt in 2004, the measure proposed by the G8 only represents $44 million in debt relief. In contrast, $214 million would be paid the IADB and the CAF (Andean Development Corporation) in interest and debt amortizations – more than 75 percent of the total servicing paid by Bolivia.

Despite these limited benefits, to access this debt relief, Bolivia must guarantee stable legal conditions, eliminate barriers to national and foreign private investment, guarantee macroeconomic stability and an open economy, while complying with other conditions. But having $44 million of debt cancelled should not mean that the Bolivian State is forced to sign Free Trade Agreements, participate in the Free Trade Area of the Americas (FTAA) and refrain from changing laws that currently protect investments and the private ownership of natural resources – laws that general economic inequality, social conflict and negative environmental impact. All of these measures – rejected by the majority of the Bolivian population – would show the double standard being practiced by the G8 countries and the international funding organisation.

What do we want?

Structural reforms have led to reduced public revenue and increased public expenditure, generating exclusion and inequality. They are, therefore, the main explanation for the reproduction of foreign debt and the difficult social situation lived by the Bolivian population. The continued application of an orthodox free market economy in the medium and long-term would exacerbate existing development problems. Therefore, the members of the Platform for Action Against Poverty are demanding:

a) Total debt remission: the State’s fiscal viability requires the total remission of the foreign debt since, to date, ineffective relief mechanisms (HIPC initiative and others) have proven to be insufficient to achieve macroeconomic balance and reduce poverty. This measure would contribute to reaching the Millennium Goals.

b) Additional financial support: the current crisis situation is the result of structural reforms applied in most of the developing countries. The debt remission, therefore, must be accompanied by greater financial assistance that does not imply any kind of counterpart conditioning factors. The debt relief should help to resolve the poverty of the majority of the Bolivian population, while leaving the Bolivian Government free to make sovereign decisions about the best measures to adopt.

c) Millennium Goals: Guaranteed, real and quantifiable progress towards achieving the Millennium Goals.

d) New ground rules for international trade: there must be a change in the ground rules for international commerce that strangle small businesses and national industries, by giving priority to multinational interests rather than national policies. This situation affects production, the poorest families who work in the productive sector, and the State’s capacity to defend the population’s rights. Meanwhile, rich countries conserve mechanisms to protect their national production through subsidies and customs measures, while imposing destructive open markets on poor countries.

Notes:

1 In 2002 Bolivia showed a deficit of 8.8 percent
2 In 1980-1986, income from the sale of assets and services represented 77 percent of current public revenue, a percentage that has dropped gradually over the past 20 years. In 1997- 2004 the average participation was 19 percent.
3 Data prepared from information from the Bolivian Central Bank’s Balance of Payment. Currently, the public debt – both internal and external -- represents approximately 87 percent of the Gross National Product (GNP).
4 The agreed remission is for $ 3,193 million, affective over 40 years.

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