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Originally published Saturday, April 9, 2005 at 12:00 AM

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IMF policies seen firsthand in Bolivia

The International Monetary Fund has long prescribed tough economic medicine for poor countries — balancing budgets, privatizing industries...

Seattle Times business reporter

The International Monetary Fund has long prescribed tough economic medicine for poor countries — balancing budgets, privatizing industries and opening up to trade. The reforms are supposed to lift people out of poverty.

In many countries, however, IMF reforms have led to problems, not prosperity. The results were particularly stark in Bolivia, a nation of 9 million that ranks as South America's poorest country. Loans from the Washington, D.C.-based international lending agency were crucial to Bolivia's ability to fund its government budget, amid declining revenue.

After the IMF laid down stiff preconditions for Bolivia's hundreds of millions of dollars in loans, the government proposed tax increases in February 2003, sparking widespread protests. The opposition eventually led to a shootout between Bolivia's military and the national police, who opposed further taxes.

Carolyn Claridge and Nicholas Verbon saw the aftermath firsthand. As students in the University of Washington's Jackson School of International Studies, they traveled to Bolivia and did much of the research for a report being released as the IMF's 184 shareholder governments gather next week for their annual spring meeting.

The report on Bolivia's painful IMF experience was written by Jim Shultz, executive director of the Democracy Center, an advocacy group based in Bolivia and San Francisco. IMF officials declined to comment for the report.

Bolivia at a glance


Population: 9 million

Area: 424,164 square miles (about three times the size of Montana)

GDP $8 billion

GDP per capita: $888 per year

Literacy rate: 85 percent

Poverty rate: 63 percent

Source: World Bank and CIA factbook

We caught up with Claridge and Verbon at a University District cafe.

Q: Bolivia's economy hasn't ever done really well. But during the 1990s, oil and gas revenue helped fund social services. How did the economy get into worse trouble?

Claridge: When [the oil and gas industry] was state-owned, the government got 50 percent of the revenue. Then they privatized [at the IMF's recommendation] and now they only get 18 percent. The reason they did that was the total they got was supposed to be higher because the gas revenues were going to be higher. But that hasn't been the case. Privatizing has not created those huge revenues. The U.S. recession also has had a huge impact on Bolivia, because its [economy] is so open.

Q: The IMF recommended policies for Bolivia that are the opposite of what the United States would apply in a recession — like cutting public spending and raising taxes. Why did the Bolivians follow them?

Claridge: The IMF has this template to fix your economy. But there are a lot of factors that play into how an economy works. [The template] doesn't always work, and it hasn't been proven to work.

Q: What happens if a country doesn't adopt the IMF recommendations?

Verbon: Bolivia is stuck, because it has so much debt it can't lose its IMF funding. The idea is that in the long run or in the medium run, [IMF reforms] would help. But for the people, who are poor, the short run really matters.

Q: Why is Bolivia's experience noteworthy?

Verbon: Bolivia has done exactly what the IMF has told them to for years. And so this is a really good example of [the results] if the IMF has control.

Q: What were you most surprised to learn?

Claridge: One thing that really struck me was the IMF only has one person in Bolivia who is helping the IMF make decisions that really impact the country. It's hard to believe that that system can reduce poverty, and I don't believe it has.

Q: But clearly the IMF is aware of the outcomes — it must have been when shooting started in Bolivia. IMF officials were there at the time. What was the reaction of IMF officials?

Claridge: The reaction was they changed. Originally they were saying Bolivia had to reduce its budget deficit to 5.5 percent [of gross domestic product]. And then they gave them 6.5 percent. In an interview, [government officials] said they didn't think the IMF would have given that other 1 percent had they not been there and seen a little bit of the chaos. But at the same time, the IMF will not say it's at fault. Officials are saying, 'We are not forcing the government to do anything, the government chooses this.'

Information


Report online: The report on Bolivia's IMF experience can be found at: www.democracyctr.org/

publications/imfindex.htm

Q: According to the report, IMF officials worried about violence resulting from adopting the reform plan. But the Bolivians thought they had no choice. How do you know the Bolivians didn't just push ahead with something they should have resisted?

Claridge: The IMF doesn't have a very good paper trail. Its meetings are behind closed doors. ... [However, in interviews current president Carlos] Mesa said repeatedly it was either no funding or implement the plan.

Q: Why did the government decide to raise personal income taxes rather than taxes on companies extracting oil and gas?

Verbon: If you raise taxes on transnational corporations, it's bad for investors.

Q: So the government expected protests against the personal tax increase but went ahead anyway?

Claridge: Yes, everyone knew there were going to be huge protests, though maybe not the violence.

Q: Of the 34 people who died, how many were civilians?

Claridge: The majority were police, but many of the injured were civilians.

Q: Is Bolivia's experience unique?

Verbon: The Argentine president said what happened in Bolivia is what happened to us. Though I think Bolivia was more extreme, because the Bolivian economy is even worse.

Alwyn Scott: 206-464-3329 or ascott@seattletimes.com

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