By: Kerri Peters
Over half of Bolivia’s population lives in poverty,[i] due in large part to Bolivia’s long history of despotic regimes which have been responsible for racking up the country’s illegitimate debt for the past 40 years. In the 1970s, the Banzer regime took out millions of dollars of loans under the people’s name which benefitted the regime and not the citizens. By the end of the Banzer regime in 1978, Bolivia racked up a debt that equated to 10% of the country’s GDP.[ii] After the fall of the Banzer regime, Bolivia went through many administrations, most of whom made the debt crisis worse by borrowing more or by printing off more money to “fix” the problem. By the end of the 1980s, interest rates on these debts rose and Bolivia’s economy was in shambles - there was no plausible way for the country to pay off their debt.
During the late 1980s, President Paz Estenssoro took office and entered Bolivia into traditional debt relief programs, including six rounds through the Paris Club, with no significant improvements in their economy. After the numerous rounds in the Paris Club, Bolivia entered the Highly Indebted Poor Country Initiative (HIPC) through the IMF and World Bank in the late 1990s, which was created to reduce the debt of low-income countries with high debt burdens. Through HIPC, Bolivia had to engage in harsh austerity measures that took away revenue from much needed services such as education and health programs. Although intended to be helpful, HIPC ended up hurting a nation that was already in trouble.
It was not until Bolivia went through HIPC and Enhanced HIPC that it qualified for Multilateral Debt Relief Initiative (MDRI) in 2005, which allowed for complete debt cancellation from the IMF, World Bank and the Inter American Development Bank. Through MDRI, the IMF cancelled US$232.5 million, the World Bank cancelled US$1.5 billion and the Inter American Development Bank cancelled US$1.2 billion.[iii] By the end of 2011, Bolivia’s debt went from just over US$6 billion (in 2006) to US$2.86 billion.[iv] More than half of the country’s debt was forgiven.
With this massive weight lifted off Bolivia’s shoulders, the country was able to move forward. Funds that would have been spent trying to pay off the crippling, illegitimate debt were reallocated to education, health and other public programs. Since Bolivia’s debt cancellation, the overall economy has shown significant improvement; although levels of poverty are still high, levels of extreme poverty were reduced and the GDP doubled.[v] Along with these improvements, the Gini index, a commonly used measurement for equality of wealth, went from 0.6 to 0.51, showing greater equality in the country. [vi]
The case of Bolivia shows that debt cancellation works. It was not until Bolivia’s debt was forgiven that improvements were made. Unfortunately, this progress has not been enough for the country to rid itself of its economic woes. In the past year, political unrest and racial tensions along with rising food costs has prevented Bolivia from keeping up with the improvements made by MDRI. The public debt has once again risen to unsustainable measures, with current external debt at US$5.49billion.[vii] Bolivia’s uphill battle shows us that although debt relief works, we, as a global community, must strive for safer, more responsible lending practices within the international financial system to create a sustainable and just world economy.[i] IndexMundi, “Bolivia, Population below Poverty Line (%).” 2012.
[ii] Daniela Lopez. “Assessing Bolivia’s Debt Relief Under the Highly Indebted Poor Countries Initiative.” 2002
http://www.bcb.gob.bo/webdocs/2011/Publicaciones/RevistaAnalisis/2003/dic/Capitulo3final.pdf
[iii] Fundacion Jubileo Bolivia. “Impact of Debt Relief in Bolivia More Than a Decade of Implementation.” 2011
http://www.jubileobolivia.org.bo/recursos/files/pdfs/Impacto_alivio_deuda_Bolivia.pdf
[iv] IndexMundi, “Bolivia, Debt- External.” 2012 http://www.indexmundi.com/g/g.aspx?c=bl&v=94
[v] Fundacion Jubileo Bolivia. “Impact of Debt Relief in Bolivia More Than a Decade of Implementation.” 2011
http://www.jubileobolivia.org.bo/recursos/files/pdfs/Impacto_alivio_deuda_Bolivia.pdf
[vi] Fundacion Jubileo Bolivia “Impact of Debt Relief in Bolivia More Than a Decade of Implementation.”2011
http://www.jubileobolivia.org.bo/recursos/files/pdfs/Impacto_alivio_deuda_Bolivia.pdf
[vi] IndexMundi, “Bolivia, Debt- External.” 2012 http://www.indexmundi.com/g/g.aspx?c=bl&v=94
Photo credit: http://www.nickbuxton.info/bolivia/economy/
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