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Macroeconomic Policy Choices for Growth and Poverty
Reduction: The Bolivian Case
North – South Institute Canada
Macroeconomic Policies to Increase Social
Mobility and Growth in Bolivia
Alejandro F. Mercado
Socio Economic Research Institute
Catholic University of Bolivia
Annual Bank Conference on
Development Economics
ABCDE Tokyo, Japan,
Introduction
Poverty in Bolivia has
become an endemic
phenomenon. We were poor
yesterday, we are poor
today and, most likely, we
will be poor tomorrow.
Bolivia has experimented
with almost all conceivable
economic policies. We have
nationalized,privatized,
capitalized and nationalized
again, while we remain
trapped into the vicious
cycle of poverty.
A fifty percent poverty rate can mean two
completely different things. First, one
interpretation of this might be that the
probability of becoming a poor person is
50 per cent. From another point of view,
the whole population is poor half of the
time.
Second, one might conclude that 50
percent of the population is always poor,
while the remainder is unlikely to
become poor.
The problem arises from treating poverty as a static problem, while
in reality its a highly dynamic problem.
A large amount of attention has been paid to poverty and
inequality, while very little attention has centered on the dynamics
of poverty which we will call social mobility
Poor
People
Rich
people
Big gap
The fundamental problem:
Discrimination
Corruption
The link
between effort
and result is
missing
Restore the
Link betweeen
Effort and
result
People make
Less effort
People make
More effort
The country
Doesn’t grow
The country
Grow fast
Lack access
to credit
Social
Mobility
Inequality and Social Mobility
6 5 .0
High Inequality
Low Social
Ec u a d o r
Mobility
High Inequality
High Social
Mobility
6 0 .0
Adjusted GINI
Pa r a g u a y
C h ile
G u a te m a la
5 5 .0
C o lo m b ia
B r a z il
Pa n a m a
B o liv ia
M e x ic o
N ic a r a g u a
D o m .R .
C o s ta R ic a
Pe r u
Uru g u a y *
El S a lv a d o r
5 0 .0
A r g e n tin a *
V e n e z u e la
Ho n d u ra s
4 5 .0
0 .7 0 0 0
0 .8 0 0 0
0 .9 0 0 0
S M I b a s e d o n te e n a g e r s ( 1 3 - 1 9 y e a r s )
Low Inequality
High Social
Mobility
1 .0 0 0 0
Bolivia: Macroeconomic situation
GDP
2.5%
1950 - 2000
¿What happen from 1990 to 2000?
GDP
4.0%
¿Why?
• Market
oriented approach
• Foreign Direct Investment
MACRO-SOCIAL SITUATION:
Social Expenses (% del GDP), 1980-2002
18
Health
Housing
Social Security
Education
16
14
12
10
8
6
4
2002
1998
1996
1994
1992
1989
1986
1984
1982
1980
0
2000
2
Monetary Poverty Incidence
90
80
70
60
50
40
30
20
10
0
1999
2000
Nacional
2001
Urban
Rural
2002
In the last years Bolivia lived dramatic moments. The resignation of
President Sanchez de Lozada and the later resign of President Carlos
Mesa, they were because of a popular movement that put in risk the
democratic system.
Stabilizing the political situation, the elections carried out in
December of the last year named as winner Evo Morales with 54
percent of the vote. Morales is the leader of the Movement to the
Socialism (Movimiento al Socialismo - MAS).
Beyond the legitimate demands of the
excluded ethnic groups, the government of
Evo Morales is the return to the vision of the
nationalist left.
The proposal of the government of Evo´s
political party is the development of an
Andean Capitalism as the first step to the
construction of socialism.
For the realization of this objective they said
that it is necessary to consolidate a strong
government that allows the development of
the historical tasks of the bourgeoisie. This
means the direct intervention of the
government in the economy and the
subordination of the market and international
trade to the government's plan.
Nationalization of the oil and natural gas
The natural gas reserves in Bolivia reach to 49 trillion of cubic feet
and are the second most important reserve of South America.
Among the companies that have important presence in Bolivia they
are Repsol YPF, Petrobras Energy, Petrobras Bolivia, Total Bolivia,
British Gas, Don Won Corporation, Pan American Energy, Mobil
Petroleum, Vintage, Maxus and others. These companies come from
Brazil, Spain, Argentina, United States, United Kingdom and
Holland among the most important.
In May 2006 the government of Evo Morales decided to nationalize
the production of petroleum and natural gas.
Outstanding aspects of the Nationalization set of laws
• The Bolivian State recuperates the property, possession and the
total and absolute control of the resources of petroleum and natural
gas.
• The companies are obliged to give all their production to the
Bolivian Oil Company (YPFB)
• The companies should change their contracts in a term of 180 days
• The fields with a production average superior to 100 million cubic
feet are obliged to give a government take of 82 percent. Smaller
fields will have a government take of 50 percent.
• In the capitalized companies, it transferred in a free way the shares
of the Bolivians in favor of YPFB
• A necessary amount of stocks of the companies are nationalized so
that YPFB has control of 51 percent of the capital.
• The refineries are nationalized
Social Mobility and Economic Growth
7000,0
Argentina*
GDP per capita ($us 1990)
6000,0
5000,0
4000,0
3000,0
2000,0
1000,0
0,0
0,7000
Uruguay*
Brazil
Venezuela
Mexico
Costa Rica
Panama
Chile
Peru
Colombia
Paraguay
Ecuador
El Salv.
Guatemala
Rep. Dom
Bolivia
Honduras
Nicaragua
0,8000
Social Mobility Index
0,9000
1,0000
How to increase Social Mobility and long run Economic Growth
Concerning Social Mobility, Education is the most important factor.
However, there are many other factors or barriers to Social Mobility :
Differences in quality and coverage of education between
rich and poor people.
Discrimination in the labor market that reduces the
returns of education
Barriers inside the credit market
Barriers inside the marriage market.
How to increase social Mobility in Bolivia?
Education
The education system is
fundamental for achieving
higher social mobility, and
the improvement of the
public education system
has been high on the
agenda in Bolivia for a
decade at least.
Regarding the public sector, the permanent increase in public
spending causes a very transitory increase in the rate of GDP growth,
but it comes accompanied by a permanent cost in terms of a bigger
public deficit and tends to favour the rich people.Many studies
conclude that in all cases reductions in the participation of
government expenditures are positively related to increases in the
productivity of the economy.
We consider that the market structure is not failing. Moreover, we
think that there is a failure in the model to read the reality. We are
interpreting the reality based on a static model while the reality is
dynamic; we live the present and forget the future. Decade after
decade, generation after generation, we bet for short run solutions
based on the intervention of the public sector in the economy and
we continue sinking into poverty. The present paper is, therefore, a
call to change our point of view, to lift the head and look the future,
to work for our children instead to make them work for us.
Concluding Remarks
This paper has shown that despite decades of concerted
international efforts to reduce poverty, Bolivia still has the
highest poverty rates in Latin America, with virtually no
improvement in the very poor rural areas.
• We argue that the failure of previous development policies is due to a lack
of social mobility. Without social mobility, there is little incentive for people
to invest in human and physical capital, and without investment there
cannot be productivity growth. In addition, the lack of social mobility
implies an inefficient use of human capital, and it hinders the construction of
efficient social mechanisms of redistribution and consumption smoothing
over the life-cycle.
• Efforts to improve social mobility in Bolivia should concentrate on public
education systems and the elimination of corruption and misgovernance.
That means reducing government intervention in the economy . Social
mobility may also be increased through improvements in the functioning of
credit markets.
The bases for poverty
reduction
MARKET ORIENTED ECONOMY
DEMOCRACY
SOCIAL MOBILITY
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