Bolivia - Foreign Trade

Foreign trade

In the late 1980s, Bolivia's pattern of trade was in a state of transition. Since the middle of the sixteenth century, Bolivia had depended on only a few exports to generate the foreign exchange necessary to import the goods and services that the country did not make or provide. The volatility in world prices of these export commodities, however, made economic planning difficult and generated frequent unstable economic cycles.

Official exports in 1987 stood at US$569 million, the lowest level in the 1980s up to that year. Reports in 1988, however, indicated a rise to US$599 million, which was still low compared with levels registered earlier in the decade. Exports were severely hurt by depressed commodity prices and the structural changes that those price movements caused in production. As a result of lower export prices, the country suffered declining terms of trade in the 1980s, often exporting more goods but for less total value. Exports in 1987, for example, purchased only 53 percent of the amount earned by exports in 1980. A substantial shift occurred in the 1980s in the relative importance of tin and natural gas exports. As a percentage of total exports, tin declined from nearly 37 percent in 1980 to just over 12 percent in 1987. During the same period, natural gas increased from just over 21 percent to nearly 44 percent of exports. Analysts contended, however, that a large portion of economic activity--the export of coca paste or cocaine and the smuggling of legal goods from Bolivia -- was not reflected in official export figures. Estimates of coca-related exports ranged from US$600 million to US$1 billion. Analysts believed that tens of millions of dollars were earned in contraband smuggling.

Trade policy after the world tin collapse of 1985 concentrated on making the external sector more market oriented and on diversifying the export base. The government emphasized import liberalization through tariff reform, realistic exchange rates, aggressive import tariff collection, and the promotion of nontraditional agro-exports and minerals. The attempts to force Bolivian producers to compete with the prices of international products after years of protection, however, were often unsuccessful. The government also contracted the services of several West European surveillance companies to ensure that tariffs were paid. Import liberalization policies helped cause a negative trade balance, which totaled US$188 million in 1987. Nonetheless, the government hoped that market-oriented policies would cause exports to expand. After 1985 all export taxes were abolished, and constant devaluations of the Bolivian peso through a floating exchange rate helped lower the prices of exports and thus improve their competitiveness. The government also decreed tax rebates for exports and established an export promotion institute.

Diversification, mainly toward agro-exports, was another key goal of trade policy. Nontraditional exports, composed mainly of sugar, coffee, soybeans, beef, and timber, reached a high of nearly 19 percent of all exports in 1987. Observers doubted, however, that such exports would grow at the rapid pace many government officials expected because of longstanding structural obstacles and a lack of credit to producers. In addition, despite the rise of natural gas and the decline of tin, minerals and hydrocarbons continued to represent the overwhelming percentage of legal exports.

Total official imports in 1987 reached just over US$777 million, the highest level in the decade since the 1981 figure of US$918 million. Although, the 1988 figure registered a drop to about US$700, the 1987 figure masked the reality of an import demand in excess of US$1 billion, as contraband imports were placed at between US$500 million and US$600 million. With the introduction in August 1985 of a uniform tariff of 20 percent, imports increased. The tariff for capital goods decreased to 10 percent in 1988, a level that was scheduled to be uniform once again by 1990. Unlike the country's exports, the composition of imports changed only slightly as a result of the restructuring of the economy after 1985. Capital goods, mostly machinery and equipment for industry and transport, accounted for nearly 42 percent of all imports in 1987, followed by raw materials and intermediate goods, dedicated primarily to import-intensive manufacturing (40 percent) and consumer goods (16 percent).

Bolivia's trade was increasingly integrated into neighboring Latin American economies. In 1987 about 51 percent of all exports went to Argentina; natural gas accounted for most of that total. During the 1980s, Brazil surpassed the United States as the leading supplier of Bolivian imports. Bolivia was active in groups that promoted regional economic cooperation, such as ANCOM and the Latin American Integration Association (Asociaci�n Latinoamericana de Integraci�n--ALADI), the successor to the Latin American Free Trade Association (LAFTA). ANCOM had been established in 1969 by Bolivia, Colombia, Chile, Ecuador, and Peru, which endorsed the sectoral industrial development programs in the pact's Cartagena Agreement. After Chile withdrew its membership in 1976, ANCOM members generally collaborated on most issues. A major exception, however, was the issue of foreign investment, which was introduced by Ecuador and continued to jeopardize regional economic harmony. With the election of the Paz Estenssoro government in 1985, Bolivia sought to relax ANCOM's investment code. Bolivia received priority treatment in ANCOM as its poorest member. In the 1980s, Bolivia also developed a growing interest in ALADI.

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