ABSTRACT
After several decades of “state-capitalism” characterized by import substitution policies, Bolivia implemented in 1985 a New Economic Policy (NEP) following neo-liberal ideas of free trade, privatization, and liberalization of capital flows. The NEP started with a very effective stabilization package that stopped record level hyperinflation (almost 25,000 percent per year), liberalized prices, exchange rates and interest rates, abolished export and import controls, and reduced the public sector deficit.1 The NEP was later complemented by structural reforms, consisting of privatization, pension reform, decentralization, and education reform.2 It was hoped that the opening up of the economy would attract foreign direct investment (FDI) which in turn would help modernize Bolivian industry, improve productivity, increase exports, stimulate growth, and reduce poverty. In this chapter we will investigate to what extent this actually happened. As part of an outward-mental strategy, the NEP quickly simplified the previously very complex tariff regime introducing a single import tariff of 20 percent for all goods. By 1990, this tariff was further reduced to 10 percent, and later the tariff on capital goods was reduced to 5 percent. Simultaneously, there were various efforts to promote and diversify exports. In 1987, the National Institute for Exports was created, and various tax incentives were offered to exporting enterprises (Antelo and Jemio, 2000: 42). Although Bolivia was hailed as an early and profound reformer (Lora, 2001), the shift to a more open economy actually had little effect on trade. If anything, it appears that exports as a percentage of GDP fell after the implementation of trade liberalization policies (Figure 11.1).
