March 19, 2004

Topic: Bolivia

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The "El Diario", one of most important newspapers in Bolivia, in its March 19th online edition, reports that the Mesa administration has placed his economic recovery plan (this is the latest version) in action. One aspect of it is to implement the plan "compro Boliviano", which literally means: buy Bolivian. According to this plan, the state, through its agencies and municipal governments, will promote domestic production, employment and economic activity by buying products it needs from small to medium Bolivian enterprises.

While it might be a good meaning plan, and perhaps, if things go as expected, it will meet some success, it is more likely, though, to add one more layer of bureaucratic bloat; more opportunity for corruption and cronyism; hinder efficient production and hinder economic activity.

The first thing that comes to mind is corruption. This malice has haunted Bolivia for most of its republican life. I mean, let's face it, not in vain Bolivia is ranked 106th, with a 2.3 score (10 being highly clean and 0 being highly corrupt) in the Transparency International's Corruption Perception Index. This new plan is bound to be smeared with corruption and cronyism in the form of "special favors" to the family members of the government officials in charge of the process. And even worst, this new plan will provide with the perfect environment to engage in bribery. After all, if you want to have something done in the Bolivian bureaucracy, it's gonna cost ya!

The second thing to think about is how much this scheme will hinder real economic activity. The government of Bolivia does not have a big budget to spend and make an significant difference. In fact, the El Diario report cites that the government plans to spend around 8 million bolivianos (around US$1 million) in its scheme. Moreover, it is already hard for the government to collect taxes and thus one has to think about how much of an impact will this plan have on economic activity. Surely, the government alone cannot account for an increase in production, specially if it is going to spend the astronomical sum of $1 million. On the contrary, Mr. Mesa's plan will only distort real economic activity by subsidizing, in some cases, inefficient producing enterprises, skewing prices and preventing the efficient redistribution of resources.

Bolivia should embark on a path of trade and become more attractive for investors. That is how much needed currency enters a country and promotes economic activity. Of course, following this path would be political suicide, in these dire moments when the hardly won Bolivian democracy is so fragile.

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