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
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
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% and have made a more desirable investment environment for multi-national corporations. Some
of the factors contributing to the lack of foreign investment include "the country's tax laws for
mineral exploitation, high transportation costs, chaotic judiciary and legal systems and rampant
government corruption" (Pacheco; 138. Bolivian Times 1998c ). Another major factor would be
Bolivia's low skilled and poorly educated workforce, which makes it extremely difficult to compete
in a global economy. These low savings and investment rates have necessitated a constant flow of
loans and grants from multilateral banks to cover the deficits. Sadly, Bolivia is unable to finance its
own investments . By 2002, the Bolivian government had owed a total of $4.5 billion to its foreign
creditors, including the U.S..
Bolivia has developed multiple neo-liberal economic reform policies, attempting to stabilize
the economy by relying on being a supplier of raw materials to the global economy, but they have all
failed.. Prices were fixed by the State, but they did not reflect the real commercial value of assets,
goods and services. Therefore, black markets emerged, such as coca, and producers and
consumers set prices according to their supply and demand. These black markets, although
beneficial to the peasants, were harmful to the economy, since they avoided taxes and
became informal.
This increasing globalization of the economy has resulted in "the lowering of employment,
wages, salaries and production in both rural and urban areas (Avirgan et al l995). Due to many
years of government's discriminatory agricultural policies, Bolivia's small farmers weren't prepared
to compete with the influx of foreign agricultural produce into their marketplaces. This ultimately
led to a minus 4% drop in food production between l985 and l989. There was more food in the
markets, but the people had no money with which to purchase it.

Bolivia 9.2 of 10 on the basis of 1326 Review.