1. General Policy Framework

In 1985 the Government of Bolivia initiated a series of economic reforms to arrest hyperinflation and open the economy. The currency was allowed to float, commercial banks were allowed to set their own interest rates, import and investment permit requirements were eliminated, economic activities which had been reserved for government corporations were opened for private investment, and the government entered into an IMF standby program. The Paz Zamora administration, which took office in 1989, has institutionalized and advanced these market-oriented economic reforms. Furthermore, the Bolivian government has successfully completed a series of IMF programs since 1986. The IMF expects Bolivia to fulfill the commitments made under a three year Enhanced Structural Adjustment Facility Program (ESAF), due to expire in July 1991, and is already talking to the Bolivian government about a fourth ESAF year.

The results of the economic reforms have been a dramatic drop in inflation (to less than 20 percent each year since 1986), steady economic growth (between 2.5 and 3.0 percent annually starting in 1987) and growing amounts of private investment. The economy is expected to grow about 4 percent in 1991 with inflation of less than 15 percent. Commercial bank deposits have doubled since 1989 to over 1.1 billion dollars, indicating a return of flight capital. Exports and imports have grown sharply with private firms now accounting for over half of export earnings, as opposed to 5 percent in 1985. Including estimates of smuggled exports, Bolivia has run trade surpluses in the last two years. These trade surpluses and large inflows of foreign aid have resulted in growing foreign exchange reserves. Net reserves in the central bank had reached 258 million dollars by October 1991, about three months worth of imports. The positive growth from 1986 offset the decline of the economy during the first half of the decade so that by 1990 the GDP and export figures were back to approximately where they had been in 1980. Meanwhile the population grew by 13 percent to an estimated 6.3 million resulting in a fall in GDP per capita during the decade to about 880 dollars in 1990.

In compliance with the IMF programs, the government has reduced the budget deficit of the non-financial public sector (which includes central, regional and municipal governments along with the parastatal corporations) from the high of 5.1 percent of GDP in 1988 to an estimated 2.6 percent in 1991. Central government expenditures fell slightly from 20.8 of GDP in 1988 to 20.3 percent in 1990 while revenues rose from 15.7 to 18.3 percent during that same period. Central government revenues increased mainly from improved tax collection (7.9 percent of GDP in 1990) but also from larger transfers from public enterprises (8.4 percent of GDP) and from larger foreign grants (1.4 percent of GDP). Budget deficits have been covered by the foreign loans and the sale of certificates of deposit by the central bank. With the budget deficit shrinking, the value of certificates of deposit in circulation had grown only slightly to 184 million dollars by November 1991 and the interest rate offered on the certificates had declined from 16.2 percent in 1989 to 8.5 percent by October 1991.

The money supply, both M1 and M2, has grown slowly since 1985 with M1 averaging around 5 percent of GDP. However, the published figure for money in circulation (323 million dollars of bolivianos) is misleading since there are also millions of U.S. dollars in circulation and dollars are a legal means of exchange. Banks are allowed to keep dollar accounts and make dollar loans. Over 80 percent of the 1.1 billion dollars worth of deposits in Bolivia's 16 commercial banks are presently in dollars. The new investment law allows contracts to be written in dollars. Interest rates fell sharply in 1991 as growing confidence in Bolivia's financial stability led to excessive liquidity in the banks and as government borrowing has decreased. By November 1991 the average rate on dollar deposits had fallen to 11.4 percent and the average rate on dollar loans was down to 19.8 percent from 16 and 24.3 percent respectively in 1989.

2. Exchange Rate Policies

The official exchange rate is set daily by the government's exchange house, the Bolsin, which is under the supervision of the Central Bank. The Bolsin holds daily auctions of dollars. The directors of the Bolsin meet every day to set a floor rate below which they will not accept bids and the number of dollars to offer for sale. The floor rate is the official exchange rate. Bids are sealed and successful bidders pay the role in their bids. The spread between the highest and lowest bids is generally less than two percent. The boliviano has depreciated in line with the differential between domestic inflation and inflation in Bolivia's major trading partners. Currency exchanges in banks, hotels, exchange houses and on street corners are legal. The parallel market exchange rates are seldom more than one percent different from the official rates.

3. Structural Policies

In 1990 the government reduced tariffs from 16 to 10 percent for all imports except for capital goods for which the tariff is 5 percent. In addition, the government charges a 10 percent value added tax and a 2 percent transaction tax on sales of all goods, whether imported or produced domestically. There are excise taxes on some consumer products including cars. Import permits are required only for sugar and wheat. The government sets the prices of only two commodities; gasoline and a type of bread commonly consumed by the poor.

In late 1990 and early 1991, the Bolivian Congress approved three laws that the executive branch had supported in order to promote private investment. The Investment Law establishes many guarantees, such as repatriation of profits, freedom to set prices, and convertibility of currency, that had been previously been implemented by Presidential decree. The law essentially guarantees national treatment for foreign investors and authorizes international arbitration. The Hydrocarbons Law authorizes YPFB, the government-owned oil company, to enter into joint ventures with private firms and to contract companies to take over YPFB fields and operations, including refining and transportation. The Mining Law created a tax on profits, which is creditable in the United States, and opened up the border areas to foreign investors as long as their Bolivian partners hold the mining concession.

All government purchases over 10,000 bolivianos (about 27,000 dollars) are, by law, handled by one of three private purchasing agents. The purchasing agents publish bid specifications, evaluate, and rank order bids for the government office or corporation making the purchase.

4. Debt Management Policies

The Bolivian government owes over 3.7 billion dollars to foreign creditors. About half of that is owed to international financial institutions, mainly the World Bank and the Inter-American Development Bank, and the other half is owed to foreign governments. Bolivia's bilateral debts have been rescheduled three times now by the Paris Club, the last time on Trinidad terms and covering payments coming due over an 18 month period. Furthermore, several foreign governments have forgiven substantial amounts of bilateral debt. In September 1991, the U.S. government forgave $371 million owed by the Bolivian government including 100 percent forgiveness under Section 572 of all old A.I.D. loans and an 80 percent reduction of Bolivian PL-480 debt, equal to the elimination of $31 million under the Enterprise for the Americas Initiative. (All U.S. assistance to Bolivia has been on a grant basis since the early 1980s.) Subsequent to the EAI debt reduction agreement, an Environmental Framework Agreement was signed by the United States and Bolivia, to allow interest payments on the new EAI obligation to be paid in local currency and deposited into a special environmental fund which will support grass-roots environmental projects in Bolivia.

The Bolivian government has reduced the debt it owes to commercial banks from over $700 million in 1985 to about $185 million by mid-1990. The government bought back many of the debt claims at 11 cents on the dollar and has exchanged other debt claims for investment bonds which will mature with the full face value of the debt claim in 25 years. Most of the investment bonds have already been redeemed for private investment projects in Bolivia. The government is now in negotiations with its commercial bank creditors to eliminate the rest of the commercial bank debt.

5. Significant Barriers to U.S. Exports

There are no significant barriers to U.S. exports to Bolivia and the minor barriers to U.S. direct investment apply to all foreign investors, not just U.S. investors. Import licenses are only required for sugar and wheat. The flour millers buy wheat, which is donated by the U.S. government (about 20 million dollars per year under the PL-480 Title III program), from the Bolivian government. However, the millers do not import any wheat directly from the U.S. since domestic production of wheat is growing and Argentine wheat is generally cheaper.

In January 1992, the Bolivian government will eliminate the tariffs on all but 100 products coming from the other four members of the Andean Pact (Venezuela, Colombia, Ecuador and Peru) which means that similar products coming from the United States will be at a slight price disadvantage. However, less than 10 percent of Bolivia's current trade is with those Andean countries. In addition, currently imposed tariffs are relatively low. Capital goods entering from the U.S. are taxed at 5 percent, and a uniform rate of 10 percent applies to all other products. Andean Pact members have also agreed to implement a common external tariff structure with duties for most products ranging from 5 percent to 20 percent. The Andean Pact dramatically increased the time schedule for adopting the external tariff from 1995 to 1992.

Bolivia became a member of GATT in August 1990 but has not yet signed any of the GATT codes, e.g. those on government procurement, standards, or customs valuation.

There are no limitations on foreign equity participation and dozens of Bolivian companies are wholly owned by U.S. investors. The new investment law essentially guarantees national treatment for foreign investors. The only restriction on foreign investment is that foreigners may not obtain mining or petroleum concessions within 50 kilometers of the borders. However, Bolivians with mining concessions near the borders may have foreign partners as long as they are not from the country adjacent to that portion of the border.

6. Export Subsidies Policies

In early 1991 the government eliminated a certificate rebate program under which the exporters of "non-traditional" goods received certificates equal to 6 percent of the value of the export. The certificates were to offset the 10 percent value added tax charged on all purchases in Bolivia. The certificate program was replaced with a "drawback" scheme which rebates either 2 or 4 percent of the value of most "non-traditional" exports. There are no other direct or indirect subsidies for exports.

7. Protection of U.S. Intellectual Property

Intellectual property protection is very limited in Bolivia. The 90 year old law governing patents and trademarks provides limited protection. For example, there are no provisions restricting the copying of videocassettes or computer programs, nor are there restrictions on satellite signal piracy. The Bolivian Congress is debating a law on commercial films that would prohibit the duplication of videocassettes. The Ministry of Industry, Commerce and Tourism has started drafting a new law on patents and trademarks, but the government plans to wait for the outcome of the Uruguay Round negotiations on intellectual property rights as well as for the Andean Pact's policy decisions on IPR before submitting any legislation to Congress. In December 1991, the Andean Pact adopted Decision 311, which replaced Decision 85 governing IPR in the region.

Despite the inadequate legal and administrative protection of intellectual property, there are no specific complaints from any U.S. firm about piracy of films, pharmaceuticals or patents. It is impossible to estimate the losses to U.S. firms caused by the duplication of video cassettes or the pirating of satellite signals for television broadcasting. Most of the duplicated videos appear to be coming from other countries. In any case, the market for these products in Bolivia is very small since only a small fraction of the 6.5 million people own televisions.

8. Worker Rights

a. The Right of Association

Bolivian workers are permitted to establish and join organizations of their own choosing, and they are free to elect their own leaders. Civil servants have the right to organize, but not strike, as do employees of banks and public markets. The government may dissolve unions by administrative act but has not done so in recent history. The ILO criticized these laws in 1991. Strikes are permitted in the private sector and frequently occur. While solidarity strikes are illegal, a solidarity strike in 1991 was not prosecuted. Unions are not truly independent of political parties and member-leadership relations are undemocratic. The Bolivian Workers Central (COB) belongs to the communist-dominated World Federation of Trade Unions.

b. The Right to Organize and Bargain Collectively

Bolivian workers have the right to organize and bargain collectively. The law does not extend this right to government workers, but the distinction is largely ignored in practice, as virtually all government workers are unionized. Negotiations between employers and labor leaders are common, but agreements are usually unwritten. The law prohibits antiunion discrimination by employers against union members and organizers.

c. Prohibition of Forced or Compulsory Labor

The law prohibits forced or compulsory labor, and the law is generally complied with and enforced. No cases of forced or compulsory labor came to light during 1991.

d. Minimum Age for Employment of Children

The law prohibits the employment of persons under 18 years of age in dangerous, unhealthy, or immoral work. Bolivia's 50-year-old labor code is ambiguous on the conditions of employment for minors from 14 through 17 years of age. However, even the existing legal provisions concerning employment of children are not enforced. Children are not generally employed in factories or businesses.

e. Acceptable Conditions of Work

In urban areas, only half the labor force enjoys an eight-hour workday and a workweek of five or five and one-half days. Like many other labor laws, the maximum legal workweek of 44 hours is not enforced. Minimum wage and certain fringe benefits are established by statute or presidential decree. Although most workers earn more than the minimum, approximately 20 percent of the workforce which is employed in the informal economy are not covered. In accordance with IMF guidelines, government workers have not received increases exceeding the inflation rate and private employers have followed suit. Responsibility for the protection of workers' health and safety lies with the Labor Ministry's Bureau of Occupational Safety. Labor laws that provide for the protection of workers' health and safety are not well enforced. Although the state-owned mining corporation COMIBOL has a special office charged with mine safety, the mines, often old and operated with antiquated equipment, are particularly dangerous and unhealthy.

f. Rights in Sectors with U.S. Investment

Probably 70 percent of U.S. investment in Bolivia is in the petroleum industry. Worker rights in the petroleum industry are legally the same as in other sectors. However, conditions and salaries for workers in the petroleum industry are generally better than in other industries because of strong labor unions in that industry.

Source: National Trade Data Bank, Agency: U.S. Department of State