Banking and Financial Services
In the late 1980s, commercial banks were characterized by their limited numbers, local prominence, concentration of deposits in a few institutions, and generally shaky financial status. Only thirteen commercial banks remained in 1988 after several locally owned banks had closed because of fraud and insolvency. Ten of these institutions were local; Citibank was the only United States bank still operating in the country. The three foreign banks remained generally inoperative, however, and were restricted to collecting previous loans. The country's top five banks--the Bank of Santa Cruz, Bolivian American Bank, National Bank, Mercantile Bank, and Bank of Cochabamba--controlled 61 percent of deposits at the end of 1988. Over half of the local commercial banks continued to report losses in 1987. In 1988 bad debt constituted 15 percent of the debt owed to local banks, whereas as much as 64 percent of the debt owed to foreign banks was deemed bad. Still, commercial banks remained the core of the private financial sector, with assets totaling US$357 million in 1988.
Government policy changes over the legality of deposits in United States dollars severely affected the sector during the 1980s and were directly responsible for a large part of the industry's poor health, although financial mismanagement was also a factor. From 1976 to 1982 dollar deposits in bank accounts were legal; by 1982 deposits in United States currency represented 90 percent of all deposits. From 1982 to 1985, however, the Siles Zuazo government made it illegal to retain dollar accounts and forced banks and other financial institutions to convert deposits and loans into Bolivian pesos at the official exchange rate, which essentially subsidized the fading peso. Within three years after the decision of the Paz Estenssoro government in 1985 to again legalize dollar accounts, 70 percent of all savings deposited in commercial banks were in dollars. Although the deregulation of the financial system after 1985 helped to expand the deposit base, legalizing dollar accounts also signified the acceptance of millions of coca dollars that were laundered through the banking system. During this period, moreover, although many banks were ravaged by hyperinflation, other banks and their top officials had profited handsomely from the rampant currency speculation and other illegal activities.
Despite deregulation, banking generally remained an elite activity characterized by extremely high collateral requirements, except for top clients. Interest rates that were 10 to 20 percent above the prevailing rates in the United States also discouraged individuals and smaller businesses from seeking credit from commercial banks. Informal credit markets flourished. Interest rates varied considerably for boliviano deposits and loans versus dollar deposits and loans. High interest rates in the late 1980s resulted from restrictive monetary policies, continued uncertainty about the economy's future, and the high demand for credit.
In addition to normal commercial banks, there were three private sector specialized banks that lent to industry but mobilized their capital base from means other than deposits. In the late 1980s, the only specialized bank that remained highly active was the Industrial Bank (Banco Industrial), which was established in 1963. The other two specialized banks--the Industrial Finance Bank (Banco de Financiamiento Industrial) and the Bolivian Investment Bank (Banco de Inversiones Boliviano)--were established more recently.
Other private sector financial institutions consisted of savings and loans, mortgage houses, credit unions, insurance companies, exchange houses, and, as of 1988, a stock exchange. As with commercial banking, these entities also grew rapidly in the 1960s and 1970s and greatly contracted in the 1980s. The principal savings and loan body, the Central Housing Savings and Loan Board (Caja Central de Ahorro y Préstamo para la Vivienda--Cacen), was also the institution most involved with mortgage financing. Established in 1966, Cacen operated privately through a network of cooperative savings and loan associations that promoted housing construction and offered mortgages and credit for home remodeling. Credit unions were also popular and functioned under the umbrella of the National Federation of Credit Unions (Federación Nacional de Bancos Cooperativos). Fifteen companies, five of which were multinational firms, sold insurance policies in the mid-1980s. Exchange houses, which dealt with international currency transactions, were also numerous, as were a whole range of more informal financial intermediaries, both legal and illegal, that chiefly operated in United States dollars. In 1988 Bolivia inaugurated a seventy-member stock exchange that was financed by the World Bank and AID.
Public sector financial institutions included the Central Bank, BAB, Bamin, and the State Bank (Banco del Estado--Banest). Under the 1985 NPE restructuring policy, the Central Bank assumed the outstanding debt of other public sector institutions. The reorganization of BAB confined it to new credit limits per loan and focused its business on loans to small farmers through its regional and provincial offices. The government converted Bamin into a mixed entity, both publicly and privately owned. Bamin primarily assisted the small mining sector by importing mining equipment and marketing ores. As a result of the modifications in public sector financial institutions, Banest became the sole development bank of the central government, analyzing investment strategies, writing feasibility studies, and providing credit to the private sector through forty-five national offices.
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