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            Despite having the second-largest reserves
of natural gas in South America, Bolivia remains to be the poorest country in
South America and one of the poorest countries in the Western Hemisphere (World
Bank 2017). Bolivia ranks eighth in gross domestic product (GDP) at purchasing
power parity (PPP) and ranks twelfth in GDP (PPP) per capita out of all twelve
South American countries, roughly two and four spots behind Peru, respectively
(CIA 2016). Bolivia’s current circumstances are a direct result of its largest
political problem: terrible economic policies. Though most countries in South
America have experienced terrible economic policies, which have negatively
affected them each individually before, this problem seems to be especially harmful
for Bolivia. In this paper, I will explore the causes and characteristics of Bolivia’s
largest political problem, terrible economic policies, in a comparative context
to Peru, and I will argue that the problem is a direct result of political
instability.  The independent variable
will be political instability and the actions taken under instability, and the
dependent variable will be economic policy.

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Yet Distinct

The First
Factor of Terrible Economic Policy: Political Instability

            Both Bolivia and Peru have
experienced political instability. Bolivia was colonized by Spain in about 1524
and gained independence in 1825. (Georgetown University 2009).  For the sake of relevance, Bolivia was moderately
politically stable up until the 1930’s after it lost the Chaco War to Paraguay,
and subsequently started experiencing its first bout of serious political
instability (Morales, Sachs 1989). In 1943, a fascist and revolutionary party
overthrew the oligarchy, and then later was overthrown itself by the same
oligarchy in 1946. In 1952, the Bolivian Revolution of 1952 occurred, led by
the National Revolutionary Movement, which ruled Bolivia for about 12 years,
until a military regime toppled it in 1964, and ruled until 1978. From 1978 to
1982 Bolivia experienced multiple changes from military to civilian rule, until
civilian rule was officially established in 1982. Fast-forward to the 21st
century, and political instability is still taking place, starting in 2001 when
the then President, Hugo Banzer, resigned. Since then Bolivia has experienced a
series of controversial presidents, such as Jose Quiroga from 2001 to 2002,
Gonzalo Sanchez de Lozada from 2002 to 2003, Carlos Mesa from 2003 to 2005, and
Eduardo Rodriguez from 2005 to 2006.  Since
2006, Evo Morales has been Bolivia’s President and Bolivia has been seemingly
politically stable (Georgetown University 2009). Under Morales, Bolivia has truly
become a mixed economy, not solely a state run economy, and one of the fastest
growing countries in terms of GDP. However, Bolivia has not really been
diversifying its exports or its economy, and this GDP growth is directly tied
to a commodity boom in natural gas on the world market. (Mises Institute 2015).
Meaning Bolivia is experiencing rapid growth in GDP not because of good
economic management and political stability, but because of its natural
resources and the value that comes with it.  

            In comparison, Peru has experienced
similar political instability. Peru was colonized by Spain in about 1524 and then
gained independence in 1821 (Georgetown University 2009). The most important examples
of political instability occurred from 1968 to 1980, with a series of military
regimes taking power from each other, and then again from 1980 to 2001 when
Peru experienced multiple coups and multiple authoritarian leaders. During this
time Peru’s economy was isolated, inflation skyrocketed into the thousands, and
it only seemed to worsen with each new leader. From 2001 to 2006, Alejandro
Toledo was President, and Peru experienced its first worthy and respectable
leader in some time; a leader and presidency that Bolivia has not quite experienced
yet. During his time as President, Toledo successfully once again established
democracy in Peru and managed to construct an economically prosperous period
within Peru, due to solid economic administration and increased foreign
investments. This allowed Peru to effectively bounce back economically,
diversify its exports and economy, and create the path that Peru is on today (Georgetown
University 2009).

            Although Bolivia and Peru have both experienced
much political instability, their economic growths today are seemingly positive.
The difference is that Bolivia is still quite a poor country; it is unknown
whether or not this political stability is implementing good economic policies.
Interestingly, in Bolivia, as with most places, it seems that political
instability, leads to terrible economic policy, and that terrible economic
policy leads to political instability.

            How this history of economic
instability has affected economic policies in the past and how today’s economic
growth is being made and managed are the next important factors of
understanding the main problem.

Second Factor of Terrible Economic Policies: Problems Within Economic Growth

            Bolivia has suffered rotten economic
policies for its entire existence and is now one of the least developed
countries in Latin and South America. Bolivia’s economy since colonial times has
mainly been focused on mining (Morales, Sachs 1989). Originally, Bolivia
focused almost entirely on mining silver during the colonial period until the
late 19th century, and then focused primarily on mining tin during
the 20th century. One unfortunate characteristic of Bolivia’s mining
industry is that it took place in the highlands and upper altitudes of Bolivia.
That, combined with the fact that Bolivia is a land-locked country, caused the exportation
of the materials to be much higher and the mining industry as a whole to be
much less lucrative for the country. These circumstances and the focus on
mining have never quite allowed Bolivia to grow economically beyond the pure
exportation of mining products. The only real diversification that has occurred
since colonial times in Bolivia is the development in exporting coca leaf and
petroleum products, such as natural gas (Morales, Sachs 1989).  

            This has led Bolivia’s GDP to be one
of the fasted growing in the world and has certainly been a positive economic
factor in Bolivia, but it has not been strong enough or lucrative enough to counter
a history of poor economic policies and political instability, nor does it allow
for organic and steady economic growth. By mostly maintaining state-run
capitalism within Bolivia and not fully allowing free market capitalism or completely
permitting direct foreign investment during really ever, Bolivia has not
developed an entire economy or diversified whatsoever. Bolivia is growing as an
economy as a whole and growing in GDP, but by not reinvesting in other sectors
of its economy and by not creating other sectors in the economy, the country
will never be financially secure or independent. By continuing state run
capitalism and little foreign investment, Bolivia will always maintain the
problem of terrible economic policies.


            Since Bolivia has never effectively or
efficiently allowed for direct foreign investment, it has subsequently never
experienced strong growth within the economy and has never developed its infrastructure
or other sectors in the economy, such as a real labor market (Morales, Sachs
1989).  Consequently, Bolivia is one of
the least developed countries in South America.

            Since 1960, Bolivia’s population,
GDP, and gross national income (GNI) per capita have all increased roughly
295%, 60%, and 12.8%, respectively (World Bank 2017). In comparison, Peru has
increased roughly 316%, 75%, and 20.5% in each of those respective categories
(World Bank 2017). When not comparing aggregate numbers, but comparing aggregate
percentage growth, it can be seen that these two countries have experienced
relatively similar economic growth in the past seventy-seven years or so; with
roughly 8% to 20% differences in growth. Looking at these percentages, it does
not seem like Bolivia and Peru are that different, or that they are performing
that differently as economies and societies.

            Where the actual divide occurs is in
GDP per capita, population below the poverty line, infant mortality rates,
sanitation rates, maternal mortality rates, physician densities, and energy
production and consumption data. Bolivia experiences an estimated GDP per
capita of $7,200, poverty rates of 38.6%, infant mortality rates of 36.4 deaths
per every 1,000 live births, sanitation facility access improvement for 50.3%
of the total population, maternal mortality rates of 206 deaths for every
100,00 live births, a physician density of .47 physicians for every 1,000
population, 0 kWh of electricity exported, and 0 bbl/ day of oil exported (CIA
2016). In comparison, Peru experiences a higher GDP per capita of about $13,000,
a lower poverty rate of 22%, approximately half the infant mortality rate at 19
deaths per 1,000, a higher sanitation facility access improvement of 76.2%, approximately
one-third of the maternal mortality rate at 66 deaths, a greater physician
density of 1.12 physicians per 1,000 population, a greater amount of
electricity exported at 13 million kWh, and a greater amount of oil exports at
14,770 bbl/ day (CIA 2016). From this data, it is clear that Peru is a richer
country, a healthier country, a safer country, and a more economically diverse
country. Although these two countries have experienced similar percentage
growth in such categories as population, GDP, and GNI per capita, it is obvious
that Peru has been diversifying its exports and economy, and furthermore has
been reinvesting in the infrastructure and quality of life within the country,
while Bolivia has not been. Bolivia’s situation is a direct result of state run
capitalism and little to no foreign investment, and ultimately terrible
economic polices.



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