Bolivia's Economic Success

By regaining public ownership of natural resources and focusing on social programs, the Morales administration has achieved record growth despite the recession.
Morales inauguration, photo by Olmovich

In January 2006, Bolivians celebrate the inauguration of Evo Morales, the nation's first indigenous president.

Photo by Olmovich

Bolivia, one of the poorest countries in the Western Hemisphere, recently re-elected indigenous President Evo Morales for another four-year term in a landslide vote. According to a new study by the Center for Economic and Policy Research (CEPR), a Washington D.C.-based think tank, Morales’ sometimes controversial policies—such as returning privatized resources to public control—have helped Bolivia thrive during the recent economic crisis. Bolivia has the highest projected growth in the Southern hemisphere for 2009.

The report, “Bolivia: the Economy During the Morales Administration” highlights Bolivia's economic growth—with rates averaging 5.2% annually during the last four years, growth has been faster than at any other time during the last 30 years. The last two years of growth are even more remarkable given the global economic context. Remittances from abroad have fallen as a result of the economic crisis, and in 2008, the United States suspended Bolivia from the Andean Trade Promotion and Drug Eradication Act (ATPDEA), which had provided preferential treatment for some of Bolivia’s exports to the U.S.

According to the report, an essential condition of Bolivia's successful macroeconomic policies has been the increase in the government's collection of hydrocarbon revenues. Morales reversed an earlier administration’s privatization of the sector, ensuring that natural gas exports benefit the Bolivian people instead of foreign corporations.

Government revenues from hydrocarbons increased from 5.6 percent of GDP in 2004 to a peak of 25.7 percent at the end of 2008.  Bolivia dramatically increased its foreign reserves, from under $2 billion in 2005 to over $8 billion in 2008, providing a cushion against economic shocks like the current global downturn. This increase in revenue and reserves allowed Bolivia to implement expansionary macroeconomic policies that kept the Bolivian economy growing through the world recession.

It also helped fund one of the most important policies taken up by the Morales administration: a significant increase in public spending. The Morales administration has ramped up public support for education, health care, loans to small businesses, infrastructure, and public pensions to reduce extreme poverty among the elderly. It is also making conditional cash transfers available to poor families, enabling them to keep their children in school and providing health care for pregnant women and children up to the age of two.

According to the report, public spending has increased from 34 percent of GDP in 2005 to 45 percent of GDP in 2008.

Morales' administration has succeeded in maintaining growth during the world recession, and has continued to put the interests of the poor at the forefront of his policies, which undoubtedly helps to explain the president’s popularity in Bolivia. Nevertheless, much more must be done to reduce extreme poverty. According to the CEPR report, Bolivia’s large international reserves can be used to raise social spending and support development projects that will create employment and reduce poverty.

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