Financial Crisis Worldwide (3): Bolivia

Photo by Archerten
Photo by Archerten

Door Ton SalmanHesitating at the doorstep — the impact of the global economic and financial crisis in Bolivia”

Financial and economic crises as the one currently haunting us, inevitably affect the whole world — we are too interconnected for anyone to escape its impact. The way the crisis lands in various countries and regions, however, differs considerably.

Take Bolivia. As a reminder: since early 2006 Bolivia is governed by its first indigenous president, Evo Morales. He attempts to pull through economic reforms, to strengthen the country’s sovereignty vis-à-vis external agents, and pursues reforms in favor of the Bolivian poor. In his political discourse he combines an ideological (‘socialist’) with an ethnic vocabulary, accusing the West of a history of exploitation of the South, and additionally charging Western political and economic models of being instigated by greed, by obsession for accumulation and expansion, and of neglect of the environment and the depletion of natural resources. The crisis, in his view, is a leaf out of one’s own book. This does, nevertheless, leave the question open: will the crisis hurt in Bolivia?

Beyond any doubt the answer is a yes: the remittances from the approximately 2 million Bolivians abroad, both in neighbouring countries, in the USA and in Europe, have contracted approximately 20 to 25% since late 2008. Additionally, a group of migrants are returning home (although reports from Europe suggest that many ‘wait it out’). Both the decrease of remittances and the return of migrants will affect the country: family incomes decline and unemployment will rise. Additionally, exports will go down, both in terms of volume due to abating demands and due to lower prices for the ‘raw material’ commodities Bolivia mainly sells abroad. In sum: yes, the crisis will hurt.

However, there are some additional elements to take into account: Bolivia’s economy is still growing, both in 2008 and 2009, some say 3, others say up to 6% a year. Arguably, explanations for these achievements are the fact that commodity prices rose between 2005 and 2008. Obviously, the price drops since September 2008 are affecting national incomes. Nevertheless, due to the much more profitable contracts and conditions with regard to natural resource?exploitation that are Evo Morales’ achievements, revenues are still higher that they were before 2005.

Additionally, the social policies of the current government, including a rise of minimum wages and several subsidies for the elderly, pregnant women and young mothers, and other poor sectors, contributed to a rise of national purchasing?power, and hence to good times for the national industry and agriculture — including a rise in employment. Although debated, several spokespersons claim that it compensates for recent drops in exports and foreign investments.

Moreover, the financial sector of the country came out quite unscathed precisely because it had no connections whatsoever with the transnational financial world. The whole problem of bad loans leading to terrible domino-effects between banks and other financial institutions left Bolivia unaffected. Bank loans in Bolivia are assessed as solid and healthy, and the banking world as willing to provide credits to solid business-plans (to which it should be added that micro-credits are still a thing the national banking system is not sufficiently enthusiastic about). Nevertheless, this point suggests that in times of crisis, being ‘marginal’ might bring some advantages, in particular if you have your internal financial affairs in order.

The government also did its share. Since 2006, state incomes have grown substantially due to nationalizations of strategic enterprises and the re-negotiation of contracts on the exploitation of natural resources such as gas, oil and minerals. The current administration has put significant parts of extra state incomes on solid accounts, so that the national reserves have grown to over 7 billion US$. This is more than at any other moment in Bolivia’s history. For this reason, Bolivia has recently been heralded by the IMF as a country with large and sound financial reserves.

Talking about the impacts the crisis might have on employment, a couple of things need to be included in the equation: less than 40% of the Bolivian labor force is in the formal economy. Over 60% is informally employed, earns low wages but is at the same time not or less dependent on the vicissitudes of the formal economy, such as lay-offs because of diminishing exports.

This fact, moreover, needs to be interpreted in the context of the existing variety of values and attitudes concerning economic behavior in Bolivia. Responsible for decisions concerning employment, investments and planning are considerations about being in charge of one’s own time, friendships and loyalties, celebrations and ‘belonging’,  just as much as are monetary calculations. As a consequence, ‘nature-based’, ‘family-based’ and ‘market-based’ economic spheres coexist in Bolivia, and feed back upon each other, prompting both the inability of the labor market to absorb the available labor force and a resistance against the labor discipline the market demands.

The result is that many prefer the low yields of informal jobs and chores above the (often also very low) salaries that would come with formal jobs’ strict demands in terms of timing and ‘reliability’. And people can afford to stick to these strategies because these informal activities provide just enough to survive more or less satisfactorily. The price the country pays is low productivity, and relatively low growth. But what it wins is a degree of invulnerability with regard to external catastrophes.

A final interesting detail is that some believe that a possible tendency towards a negative trade balance will in part be compensated by drug-trafficking. Coca will in the near future remain one of Bolivia’s hotly debated ‘non-traditional exports’.

In sum then, the direct effects of the crisis in many other countries, such as increases in unemployment, people unable to pay their loans and mortgages and losing their houses, banks going broke and making people lose their money or entering a big struggle to recover it with state help, national industries losing money due to drops in consumption, state interventions in financial institutions that are too important to go down — all these things are not occurring in Bolivia. It is plausible that this has to do with the fact that Bolivia, although vulnerable because of its dependence on exports and remittances, is relatively immune to the more severe impacts because of its informality, marginality, and disconnection with the global and big-scale economic and financial system.

Ton Salman is associate professor at the Department of Social and Cultural Anthropology (VU University). He is specialized in social movements and citizenship, with Latin America as his regional specialization. He wrote earlier (in Dutch) on Standplaats Wereld about human rights  in Bolivia and crime with supernatural help.

Earlier posts in the Financial Crisis Worldwide series: introduction (Kim Knibbe) and Indonesia (Juliette Koning).

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