Figure 1. Administrative Divisions of Bolivia, 1989

BOLIVIA'S WEALTH OF NATURAL wonders, colorful Indian traditions, and enigmatic ancient ruins make it one of the world's most unusual countries. The "Tibet" of South America, Bolivia is traversed by three massive Andean ranges, which include four of the world's highest eternally snow-topped mountains, towering to heights up to 6,550 meters (Sajama). Although the country is landlocked, it has Lake Titicaca, lying half in Bolivia and half in Peru, the world's second largest inland sea and highest navigable lake (3,810 meters above sea level), as well as one of the deepest (370 meters).

Bolivia is a land of sharp contrasts with climatic conditions ranging from arctic to tropical. It is divided into three distinct ecozones: the bleak, windswept, Tibetan-like plateau or "high plain" called the Altiplano (3,600 meters high) separating two generally parallel Andean cordilleras; the intermediary valley region (often referred to somewhat loosely by travel writers as the yunga, meaning warm valleys), which consists of both the eastern temperate high valleys and the only valley that Bolivians call the Yungas, the steep semitropical valley northeast of the city of La Paz; and the eastern tropical flat lowlands, which make up about 70 percent of the country, including part of the vast, semiarid Chaco region in the south. The first two of these ecozones constitute the highlands.

The central range, or Cordillera Real, forms a magnificent snowcapped backdrop for La Paz, which is the seat of government. No other major city in the world can boast of a higher, more immense mountain overlooking it than La Paz's Illimani (6,322 meters). Although La Paz is centered at the bottom of a deep, bowl-shaped canyon (protected from the chilly Altiplano winds), the city is 3,557 meters high, whereas rival Santa Cruz, the fastest-growing large city in the eastern lowlands and Bolivia's second-largest city, is only 416 meters in elevation.

The poorest country in South America in the late 1980s (per capita income was US$640 in 1987), Bolivia also had some of the lowest health and other social indicators in Latin America, but it did not suffer from one common Third World problem, namely, overpopulation. Although larger than France and Spain combined, Bolivia had only about 7 percent of their total population (or fewer than 7 million inhabitants), one of the lowest population densities in the Western Hemisphere. The nation's population had more than doubled, however, since 1950, and its distribution, slightly more rural than urban, was highly uneven, with most of the people living in the highlands. The urban population was concentrated in only six main highland cities and Santa Cruz. (Bolivia's projected population of nearly 10 million in 2000 was expected to be more urban than rural.)

With 55 percent of its population Indian, Bolivia has the proportionately highest Indian population of any country in Latin America, although Guatemala and Peru both have larger numbers of Indian inhabitants. Nevertheless, the country was sharply divided in its ethnic composition, languages, and modes of living in 1989. The two principal highland Indian groups, the Quechua and Aymara, constituted 30 percent and 25 percent of the population, respectively. Cholo or mestizos (those of mixed blood) made up at most 30 percent. The Quechua and the Aymara traditionally had not intermarried and had always kept their languages, physical characteristics, and many social traditions distinct, thereby adding to the country's deep regional and social cleavages. (In addition, very few of either group ever learned Spanish.) The two groups also inhabited different areas: the Aymara lived mainly in the northern part of the Altiplano and Yungas, and the Quechua lived in the two north-south mountain ranges east of the Altiplano and in the temperate valleys. Whites (mostly descendants of Spaniards) constituted less than 15 percent of the population. Although they inhabited the same cities, the whites had little in common with the Indians.

The Quechua, once part of the great Inca Empire (Tiahuantinsuyo) centered in Cuzco (Cusco) in present-day Peru, were valley people in pre-Incan times who adopted the language of the conquering Incas. The origins of the Aymara have remained somewhat obscure. The Aymara and the few surviving members of the Puquina-speaking Uru and Chipaya tribes, which the Aymara once oppressed, still ply Lake Titicaca in totor reed boats, as they have for almost a millennium. Archaeologists generally have held that the Aymara emerged as a distinct group about A.D. 1100 and that their ancestors were part of the great Aymara-speaking Tiwanakan Empire (or possibly only the Kolla Indians, who constituted its work force) that was centered at Tiwanaku (Tiawanaco) at the southern end of Lake Titicaca.

Bolivia's largely unknown Tiwanakan prehistory is as alien as the Altiplano's topography. The origins of the Tiwanakans and their sudden disappearance have remained shrouded in mystery, myth, and controversy. Early Spanish chroniclers found that the Aymara lacked an ancestral memory or written record of the Tiwanakans. The Tiwanakans appeared as an already robust culture in at least 600 B.C. (although some archaeologists date them back to around 1500 B.C.) and developed through at least five distinct stages over nearly two millennia, until becoming a lost civilization around A.D. 1200. During the culture's final centuries, when it flourished, its religious influence extended throughout the Pacific Andean region as far north as Ecuador. According to archaeologists, much of the later Quechua-speaking Incan civilization was based on inherited Tiwanakan culture and technology.

Tiwanaku was the sun-worshiping empire's lofty ceremonial and administrative center, located on what was then an island in Lake Titicaca. Over the centuries, the lake has receded, leaving the ruins some twenty kilometers from its shore (the ruins of at least one other ancient city have been discovered submerged). Tiahuanaco occupied an area of almost six square kilometers and had a population ranging from 20,000 to 100,000. The site, although still only partially excavated, contains some of the most impressive prehistoric ruins in the Western Hemisphere. Its immense, open-sky stone edifices, such as the temple of Akapana and Palace of the Sarcophagi, are constructed on enormous foundations and contain polished walls. Pyramidal temples include the Sun Temple of Kalasasaya with its striking Calendar Gate, or Gateway of the Sun (Puerta del Sol), and another estimated to have been as large as Egypt's Great Pyramid. The walls of these once brightly painted temples were adorned with gold-covered sculptured bas-reliefs. Over the centuries since the Spaniards arrived and began to systematically destroy the site, using it as a quarry, the ruins have been vandalized to such an extent that only the heaviest megalithic vestiges remain.

The Tiwanakan culture was as advanced in many respects as that of the ancient Egyptians. The Tiwanakans built an extensive system of roads, terraced mountain slopes, and huge raised terraces surrounded by deep, stone-block irrigation canals that made what is today a barren, dry region into fertile agricultural land for growing highly nutritious crops, such as a grain called quinoa (their sacred "mother grain"). Their buildings contained carved stone pipes for plumbing and were constructed of geometrically cut stone blocks linked with copper pins and clamps so tightly that mortar was unnecessary. The Tiwanakans used timber-built vessels to ferry andesite stone slabs weighing more than sixty tons forty-eight kilometers across the lake from quarries at the extinct volcano Kayappia, measured and cut them meticulously, and ground and burnished them smooth. Thousands of workers transported red sandstone blocks weighing up to 160 tons from a quarry tem kilometers away by dragging them along an embankment covered with wet clay. Tiwanakan sculptors adorned their large pillar-like statues of the Sun God (Kon-Tiki Viracocha) and priest-kings and other slabs with an elaborately developed, but as yet undeciphered, iconography. Artisans created exquisite golden ornaments and ceramics, the latter containing brilliant colors and sculptured figures.

Investigators have postulated various theories to explain the mysterious disappearance of the Tiwanakan civilization. Some authors have speculated that the Aymara-speaking, warlike Kollas liquidated the Tiwanakans. Incan legend also spoke of a tribe from the Coquimbo Valley in Peru that attacked and massacred the bearded white men in a battle on an island in Lake Titicaca; only Kon-Tiki and a few others escaped and fled west. Some scientists have hypothesized that a dramatic drop in the water level of Lake Titicaca could have debilitated the Tiwanakans and made them vulnerable to attack by hostile tribes. Archaeologist Alan L. Kolata has determined that Tiwanaku's irrigation fields were no longer functional by A.D. 1000, possibly as a result of a severe drought lasting for decades. In any event, there seems to be general agreement that the scattered megalithic remnants of uncompleted projects provide evidence that Tiwanakan life came to an abrupt end. From 1200 to 1438, the Kollas assimilated the peoples who had lived under the Tiwanankan Empire. Thus, the Kollas are presumed to have inherited elements of the vanished culture, such as some stone-building skills, but not the more advanced aspects of the civilization.

The Incas of Peru emerged shortly after the collapse of the Tiwanakans and reached an equally advanced level of civilization during their relatively brief history of several hundred years. Incan legends also gave accounts of bearded white men who came from the shores of Lake Titicaca and brought them civilization and then went to the Pacific Coast and disappeared overseas. The Incas worshiped Viracocha Inca and the sun and built sun temples on the Island of the Sun in Lake Titicaca. Architectural similarities with Tiwanakan culture included the trapezoidal shapes of doors and window openings and the masterfully cut and interlocked walls of large stone blocks.

In the late fifteenth century, the Incas, after meeting stubborn resistance, finally brought the Kollas under their control. According to legend, the Incas were awed by the then still magnificent ruins of Tiwanaku, which they found occupied by the Aymara. Nevertheless, the Incas kept their distance from the site as if it were taboo. They imposed only their religion on the Aymara and allowed them to keep their social traditions and language. The relatively brief Incan culture in Kollasuyo (present-day Bolivia) produced beautiful ceramics and brightly colored rectangular pack cloths (ahuayo), styles that still characterize the work of the Quechua and Aymara. Incan outposts extended to the fringes of the eastern escarpment (east of Cochabamba), as evidenced by the important ruins of Incallacta and possibly Samaipata, although whether the latter, a colossal fortress carved out of solid rock on a mountaintop, is actually Incan or Tiwanakan has been disputed.

When Francisco Pizarro arrived in Tumbes (in present-day Peru) in 1532, the Incas thought he was Viracocha Inca returning. After conquering the Incas, the conquistadors systematically destroyed the Incan and other "backward" Indian cultures, including most of an estimated seventy species of exotic Incan crops, such as quinoa, that are only now being rediscovered and reintroduced around the world. For almost three centuries, the Spaniards exploited the rich silver mines of what they called Upper (Alto) Peru or Charcas (present-day Bolivia). They subjected the mainly Aymara Indians on the Altiplano and the Quechua Indians in the temperate valleys to a system of feudal peonage in the mines and textile mills (obraje) and on the haciendas, denying them even the right to learn to read and write their own languages.

Imported African slaves died off so rapidly doing the strenuous high-altitude mining work and the Indians feared them so much that they were used mainly for domestic work in the silver-mining city of Potosí, for many years the richest and largest city in the Americas (160,000 residents in 1660). African slaves, however, became an Aymara-speaking subculture in the Yungas, which they colonized for coca cultivation. Chewing coca leaves (supposedly the exclusive right of the Incan elite in pre- Columbian times) enabled the Aymara to cope with the hardships of mining by numbing their senses to the cold and deadening their appetites.

After becoming an independent republic in 1825 under the presidency of its liberator and namesake, Simón Bolívar Palacio, Bolivia proved difficult to govern and hold together; its heterogeneous, illiterate population lacked any sense of national self-identity or patriotism. Regional rivalries that antedated independence remained rife. Because the Indians remained culturally and physically isolated and illiterate, most of them probably were unaware that they lived in a country called Bolivia until well into the twentieth century. The distinctive heritage of architecture, painting, and sculpture left by the Spaniards was of little use to the Indian masses, whose daily life was a struggle to survive. Furthermore, Bolivia was 2.2 million square kilometers, or more than twice its present size. During its first 110 years, the nation lost approximately half of its territory in wars and controversial bilateral deals. The most traumatic loss resulted from the War of the Pacific (1879-83), in which Chile seized Bolivia's seacoast and rich nitrate fields in the Atacama Desert.

Bolivia has suffered from the rule of numerous despotic and incompetent caudillos during its history as an independent nation. None was crueler and more depraved and ignorant than General Mariano Melgarejo Valencia (1864-71), whose many victims included the conspiratorial General Manuel Isidoro Belzú Humérez (1848-55), murdered on being received in the presidential office after returning from exile. Melgarejo, a mining baron, squandered the country's treasury on his mistress, ceded an immense rubber- farming territory to Brazil in exchange for the right to use the Amazon River as a waterway, and initiated the government's seizure and sale of Indian communal lands. Belzú's frequently quoted valedictory, however, that "Bolivia is totally incapable of being governed," created an enduring stereotype. In Belzú's era, moreover, Bolivia's caudillos were so busy fighting for power among themselves that they had little time or energy left to govern the country effectively.

A number of exceptional leaders also have governed from the Palacio Quemado, or Burnt Palace (the unofficial name given the rebuilt Palace of Government after it was burned by a mob in 1875). In 1983 the La Paz newspaper Última Hor polled thirty-nine prominent Bolivians in various professions on which seven presidents they considered "most significant." The final list (in chronological order) consisted mostly of historical figures: General Antonio José de Sucre Alcalá (1825-28), General Andrés de Santa Cruz y Calahumana (1829-39), Belzú, Melgarejo (who received a record fifteen negative votes, as well as two positive ones), Aniceto Arce Ruíz (1888-92), Ismael Montes Gamboa (1904-09 and 1913-17), and Víctor Paz Estenssoro (1952-56, 1960-64, and 1985- 89). Those garnering the most favorable votes were Santa Cruz and Paz Estenssoro (thirty-three and thirty-two, respectively). The next highest-rated president, Belzú, curiously garnered twenty- one favorable ballots and no negative ones, despite having ruled Bolivia with a reign of terror.

Other well-regarded nineteenth-century leaders included José María Linares Lizarazu (1857-61) and General José Ballivián y Segurola (1841-47). Linares had widespread support when he seized power as the first civilian president but lost it as he became dictatorial. Ballivián, although widely popular, resigned after tiring of putting down insurrections. His urbane and European- educated son, Adolfo Ballivián (1873-74), seemed to have the potential of becoming an outstanding president and probably would have changed Bolivia's involvement in the War of the Pacific had a mortal illness not forced him to resign suddenly. Elected to the office (unlike his father), Adolfo Ballivián briefly restored honesty, tolerance, and liberty to government.

During the period of Conservative Party rule (1880-99), silver- mining magnates, such as Gregorio Pacheco Leyes (1884-88) and Arce Ruíz, followed the precedent set by Melgarejo of occupying the presidency, but did so legally. During the relatively stable Liberal Party era (1899-1920), when the tin industry boomed, the three tin-mining moguls--Simón I. Patiño, a Bolivian chol who became one of the world's richest men; Carlos Aramayo, a Bolivian; and Mauricio Hochschild, an Austrian-born Argentine-- intervened in politics more indirectly by employing politicians and lawyers (la rosc--see Glossary) to represent the oligarchy's interests. The mining and landowning elite kept the mine laborers and landless peasant migrants in a system of neofeudal peonage called pongaj and intensified the despoilment of the Indian communities of their ancestral land.

The disastrous war with Paraguay, the Chaco War (1932-35), cost Bolivia 65,000 lives, hundreds of millions of dollars, and most of its vast Chaco territory. Although the Chaco was nearly uninhabitable, it was of strategic importance as Bolivia's only access to the Atlantic Ocean, by way of the Paraguay River. By discrediting the traditional oligarchy because of its inept civilian and military leadership, the Chaco War served as a turning point in Bolivia's military, political, and cultural life. It opened the way for a series of coups by reformist military officers, none of whom fared well in office, the creation of new political groups, and political activism by the Indians. The Nationalist Revolutionary Movement (Movimiento Nacionalista Revolucionario--MNR) emerged as Bolivia's first party of the masses.

Economic decline and social unrest during the post-World War II years came to a head in the form of the 1952 Revolution led by the MNR's Paz Estenssoro and Hernán Siles Zuazo (1956-60 and 1982-85). One of Latin America's three most significant agrarian revolutions of the century and the least violent of the three, it was aimed at the 6 percent of the landowners who fully controlled 92 percent of all cultivated land in the republic. In addition to sweeping land reform measures, including an end to the pongaj system, it returned to the Indians most of the land on the Altiplano taken from them in the past. The 1952 Revolution also resulted in civilian government, universal suffrage, and primary education in rural areas. It thus increased identification by the Indian peasants (campesinos) with the national society rather than simply their isolated village or hacienda. Moreover, the 1952 Revolution destroyed the mining interests by nationalizing the tin mines and creating the Mining Corporation of Bolivia (Corporación Minera de Bolivia--Comibol) and Bolivian Labor Federation (Central Obrera Boliviana--COB). After the first years, however, the 1952 Revolution, dubbed by political scientist James M. Malloy as the "uncompleted Revolution," lost its momentum; land reform in the highlands soon stagnated, and a new elite emerged.

In 1964 the military, having been rebuilt by the MNR government with United States assistance, reverted to its old ways of staging coups and remained in power for most of the next eighteen years. During that period, ten military dictators held office, and some relied heavily on the army to suppress labor protests by miners and peasants. In October 1967, the army defeated an ill- fated attempt by Cuba's Ernesto "Che" Guevara to start a Cuban- style revolution in the politically apathetic Bolivian countryside. The news that the charismatic Cuban revolutionary hero, who had not been seen in public for two years, was leading an insurgency in Bolivia received worldwide publicity; his capture and summary execution earned Bolivia the enmity of the international left (the military officer in charge of the counterinsurgency operation was later assassinated in Paris).

In 1979-80 the country enjoyed a brief respite from military rule under Lidia Gueiler Tejada, the country's first woman president, whom the National Congress (hereafter, Congress) appointed for a one-year mandate. Siles Zuazo, leader of the Nationalist Revolutionary Movement of the Left (Movimiento Nacionalista Revolucionario de Izquierda--MNRI), who had been democratically elected in 1980, was supposed to succeed Gueiler, but General Luis García Meza Tejada (1980-81) staged a bloody military coup in July 1980.

García Meza seized power with the help of cocaine traffickers and European mercenaries recruited by Klaus Barbie, longtime resident and former Gestapo chief in Lyons. As García Meza's internal security adviser, Barbie gave his paramilitary unit, The Newlyweds of Death (Los Novios de la Muerte), free rein to practice neo-Nazi tactics of arbitrary arrests, torture, and disappearances. The regime's brutal repression and deep involvement in cocaine trafficking isolated the country internationally and discredited and demoralized the Bolivian military, compelling it to oust García Meza and allow a transition to democracy.

The optimism engendered by the return to civilian rule under Siles Zuazo soon turned to widespread discontent and nationwide strikes called by the COB because the virtually bankrupt Siles Zuazo government failed to salvage the foundering economy. As the government printed money to cover growing budget deficits, inflation skyrocketed out of control, at one point reaching an accumulated rate of about 24,000 percent, Latin America's first recorded hyperinflation. For the most part, barter replaced the money economy. As a result of a 60 percent drop in the price of tin in late 1985, mining, which had dominated the Bolivian economy since colonial times, decreased radically. The Siles Zuazo government also alienated the United States by opening close relations with Cuba and criticizing United States policies toward Latin America.

Having failed completely to stabilize the economy, Siles Zuazo cut short his term of office by one year so that presidential and congressional elections could be held in July 1985. Paz Estenssoro's third presidency (1985-89) was notable not only for being completed without a military coup but also for his successful, albeit economically harsh, efforts to bring hyperinflation under control and to restore a measure of economic and political stability, as well as good relations with the United States. Acting on the advice of a Harvard professor and several Chilean economists, Paz Estenssoro quickly applied orthodox free-market policies to cure Bolivia's sick economy, which was choking from decades of state intervention. He implemented an austere stabilization program, the New Economic Policy (Nueva Política Económica--NPE), which slashed the government's budget deficit, imposed a wage freeze and a tenfold increase in the price of gasoline, eliminated all price subsidies, laid off thousands of workers at inefficient state- owned companies, including three-quarters of the miners employed by Comibol (about four-fifths of its work force), liberalized trade, allowed the peso to float against the United States dollar, and loosened disclosure requirements for the Central Bank (Banco Central). He also enacted a state of siege to deal with the resulting labor unrest.

In a remarkable accomplishment, the government reduced inflation to nearly zero within weeks of the NPE. Other fiscal achievements included cutting the budget deficit from 36 percent of the gross domestic product (GDP--see Glossary) to 4 percent, retiring more than US$600 million of the country's burdensome foreign debt through an innovative buy-back and debt-equity swap program, and modernizing the complex, ineffective tax system. Bolivia enjoyed exceptional price stability during the rest of the decade, with inflation running at an annual rate of only 6 percent in late 1989.

The 1989 presidential elections, although characterized by widespread apathy, were peaceful, widely regarded as fair, and free of any threat of military intervention. As such, they affirmed Bolivia's progression along the democratic path and growing political maturity. According to political scientist Eduardo A. Gamarra, the key political question in 1989 was governability. In the first round in May, Jaime Paz Zamora, the social democratic candidate of Bolivia's center-left Movement of the Revolutionary Left (Movimiento de la Izquierda Revolucionaria--MIR), placed third behind Hugo Banzer Suárez (1971-78), candidate of the right-of-center Nationalist Democratic Action (Acción Democrática Nacionalista--ADN), and the MNR's Gonzalo Sánchez de Lozada. Because no candidate received a majority in the May elections, it once again fell on Congress to choose the president from among the three principal candidates.

Paz Zamora and his longtime political adversary, Banzer, who had once jailed Paz Zamora for six months, joined forces in an unlikely alliance, called the Patriotic Accord, thereby outmaneuvering front-runner Sánchez de Lozada of the MNR in the congressional lobbying. Congress subsequently chose Paz Zamora to be the country's seventy-sixth president. It also selected Banzer's running mate, Christian Democrat Luis Ossio Sanjinés, to be vice president. Many Bolivians, remembering Paz Zamora's tumultuous record as vice president in 1983, initially viewed with anxiety and uncertainty the prospect of the one-time revolutionary assuming the presidency. On receiving the presidential sash and medal of 1825 from his uncle, Paz Estenssoro, in August 1989, Paz Zamora vowed to maintain a free- market economy, develop agriculture and small and medium-size industries, and continue the NPE. Paz Estenssoro was Bolivia's first democratically elected head of state to complete his term of office in twenty-five years and to turn over power to an elected successor. Considering that Paz Zamora was Bolivia's third successive democratically elected president and that almost half of Bolivia's governments had been de facto military regimes, this democratic trend was no small accomplishment.

Despite its exaggerated image as one of Latin America's most unstable and violent countries, Bolivia appeared at the end of 1989 to have decidedly put two of its traditional maladies--coups and inflation--behind it. Furthermore, Bolivia was relatively free of the rampant terrorism, insurgency, and criminal violence that afflicted the larger Andean nations of Colombia and Peru. With the main exception of the García Meza period, its politics in the twentieth century were not exceptionally violent. Only three presidents--Pedro Blanco Soto (1828-29), Augustín Morales Hernández (1871-72), and Gualberto Villarroel López (1943-46)-- all of whom were military men who had seized power, were assassinated while in office (the deranged Morales by his own nephew).

Among the formidable challenges confronting Bolivia's new democratic government in the 1990s was the export-dependent economy, which was stagnant and prone to crises. Despite Paz Estenssoro's considerable economic achievements, agricultural production was down, the unemployment rate was running at about 22 percent, and the terms of trade (see Glossary) had declined by almost 50 percent since 1985. Bolivia's growth prospects were constrained by its dependence on Argentine payments for a large share of its export revenues, poorly diversified exports, low domestic savings, and high levels of foreign debt. In addition, Argentina had run up more than US$250 million in arrears for its purchases of Bolivian natural gas, causing havoc in Bolivia's balance of payments and fiscal accounts. Nevertheless, the economy grew by 2.2 percent in 1987 and 2.8 percent in 1988, spurred by a resurgent mining sector, which accounted for 44 percent of the country's export income in 1988.

In mid-November 1989, Paz Zamora responded to his country's first crisis, a strike by the 80,000 state teachers who were supported by the COB, by the usual method of imposing a state of siege (which banned strikes, public meetings, and demonstrations for ninety-days), arresting more than 850 union members, and banishing some 150 of them to internal exile. The teachers were demanding a special wage bonus of US$100 to supplement their meager monthly wage of about US$45. He brought the troublesome strike to an end the following spring, however, by offering them a 17 percent pay increase and paying them an already negotiated annual bonus.

Growing national security, social, and economic threats from cocaine trafficking and addiction also confronted the Paz Zamora government. About one-third of the work force of 1.6 million in 1989 was engaged in an underground subsistence economy based mainly on coca cultivation and contraband and estimated to be larger than the formal economy. The coca/cocaine industry posed a dilemma for Bolivia, the world's second largest source of cocaine, because of the trade-off between its economic benefits and its political, social, and cultural costs. On the one hand, exports of unrefined coca paste and cocaine generated an annual income of US$1.5 billion, of which some US$600 million remained within the country in 1989. The cocaine industry had become Bolivia's biggest employer, employing some 500,000 people in the production of coca and the transportation, sale, and manufacture of cocaine, according to Cochabamba's Institute of Social and Economic Studies. The majority of the dismissed Comibol workers entered the coca trade, many of them joining the Chapare region's approximately 200,000 workers and peasants involved in cutting and burning the rain forest and in growing coca bushes, whose leaves were processed into coca paste and cocaine.

On the other hand, the cocaine industry enabled cocaine traffickers--nationals and foreigners alike--to threaten the national sovereignty and institutions with occasional acts of terrorism and increases in corruption at all levels of public institutions. Other by-products of the cocaine business included increased coca-paste addiction among Bolivia's skyrocketing numbers of abandoned children, decreased production of relatively unprofitable traditional food crops, and a widening income disparity between the wealthy minority and the poor, who constituted the overwhelming majority. Moreover, Bolivia, known for centuries for its minerals--first silver and then tin--had become synonymous with cocaine.

In the late 1980s, Bolivia's coca/cocaine industry dominated relations with the United States, the principal cocaine-consuming country. One of the most difficult challenges facing Paz Zamora was complying with a controversial coca eradication law in order to continue to qualify for United States economic aid. Although Bolivia was attempting, with United States support, to implement a program combining cocaine interdiction and coca eradication and substitution, its efforts were hampered by strong resistance from the increasingly militant and politically powerful peasant unions of coca growers, inadequate enforcement, constant expansion of coca fields, and corruption. Coca production actually increased by more than 20 percent in 1988, according to the United States Department of State.

Bolivia ruled out other more drastic eradication methods, such as repression of the coca farmers or herbicidal spraying of coca fields. A more effective approach than using coercive methods against the coca-growing small farmers, in the view of social scientist Kevin Healy, would be, in addition to reducing world demand for cocaine, to provide agricultural price supports for the otherwise unprofitable substitute crops, such as bananas, coffee, and cocoa.

December 1989

In March 1990, the United States Department of State reported that progress in antinarcotics operations in 1989 was uneven and that coca eradication in Bolivia again had failed to keep pace with new production. It found, however, that the situation had begun to improve during the last quarter of the year as a result of the Paz Zamora government's cooperation with the United States in preparing for the Andean Summit in mid-February 1990, its stepped up coca-eradication efforts, and its decision to allow the United States to extradite notorious cocaine trafficker Luis Arce Gómez.

During the first five months of 1990, moreover, the Paz Zamora government appeared to have stemmed the annual trend of expanding production. With coca production no longer profitable for many small farmers in the Chapare because of a drastic drop in the price of coca paste, the farmers reportedly had eradicated more than 3,200 hectares of the region's estimated 54,000 hectares of coca plants, more than in all of 1989. Chapare coca farmers were beginning to substitute alternative crops, such as fruit and spices. Coca's precipitous, albeit temporary, fall from bonanza- to-bust status in Bolivia was attributed largely to a combination of Colombia's crackdown on major drug traffickers and the Paz Zamora government's vigorous enforcement of its policy to destroy coca-paste laboratories and crack down on wholesale buyers of coca paste.

Bolivia's move away from a cocaine-based economy was expected to have significant economic costs. The Paz Zamora government estimated in early 1990 that US$627 million would be needed for crop substitution and rural development over the 1990-95 period. Without substantial assistance, the prospects that coca farmers could earn a living by producing alternative crops without a guaranteed market were uncertain at best. During his official visit to Washington in May 1990, Paz Zamora appealed for a major increase in financial aid to help extract the Bolivian economy from the cocaine business. In addition to financing the operations of Bolivia's antinarcotics police and the Bolivian operations of the United States Drug Enforcement Administration (DEA), the United States provided US$78 million in development aid and economic support in the 1990 fiscal year (FY--see Glossary). A small Peace Corps program was reestablished in Bolivia in March 1990.

Chapare coca farmers were not the only inhabitants of the eastern lowlands making their complaints known in 1990. In September more than 700 Indians representing ten tribes in Beni Department staged a 643-kilometer "march for dignity and territory" from Trinidad to La Paz. The Indians were protesting the destruction of the 560,000 hectares of the Chimane Forest that the government legally handed over to logging companies in 1987. In addition to ruining the forest's flora and fauna, the Indians claimed that the loggers were threatening their culture. Critics faulted the logging companies for not reforesting, as required by Bolivian law. The government attempted to strike a balance between the interests of the Indians and loggers by offering to rezone the logging region, but not to revoke all timber rights.

Paz Zamora's continuation of his predecessor's successful free- market policies, as well as the new government's success in taming Bolivia's inflation, settling its foreign debts, and adopting pro-business and pro-foreign investment policies, persuaded the Paris Club (see Glossary) creditor countries to grant the country a special debt-rescheduling package in March 1990. The government also hoped to increase GDP growth from 1989's meager 2 percent to 5 percent per year. To that end, it planned, under a five-year program, to sell off 100 of its 157 state-owned companies and use the estimated US$500 million in revenues for health, education, and public works.

In addition to its privatization program, the Paz Zamora government began to encourage foreign investment. In 1989 it opened a stock exchange in Bolivia and rewrote the Investment Law and Mining and Hydrocarbons codes to make them more favorable to foreign investment. Bolivia also joined with four other South American countries--Argentina, Brazil, Paraguay, and Uruguay--in a joint effort to call the attention of the world's investors, business people, and lending agencies to investment opportunities in the region. In the first quarter of 1990, a number of foreign companies expressed interest in joint-venture projects to tap Bolivia's vast mineral reserves, and several signed on to such undertakings. By September, however, Paz Zamora had had to retreat from his neoliberal, economically orthodox program under pressure from COB unions that had staged strikes and mobilized popular support against privatization of "strategic" state companies and foreign mining contracts.

November 1990

The question of "governability" under the Paz Zamora government that Gamarra raises in Chapter 4 was put to the test in December 1990 when the country's fledgling democratic system experienced what the daily La Razó somewhat hyperbolically described as its "worst political crisis" in a struggle over separation of powers. Quintessentially Bolivian, the constitutional crisis arose over the seemingly minor matter of the state's overturning a 15 percent increase in the levy a company was expected to pay on beer sales. On the initiative of the Paz Zamora administration's parliamentary majority in the lower house, Congress suspended eight of the twelve members of the Supreme Court of Justice on grounds of incompetence. In response, the opposition MNR charged that the impeachment proceedings were a Kangaroo court and intended to concentrate all three state powers in the hands of Paz Zamora and his political partners. Ironically, the president of the Supreme Court of Justice called on the military to intervene. The spectacle, which Paz Zamora dismissed as "a tempest in a teacup," tarnished the international image of Bolivia's new democracy. On the positive side, however, the military's inaction seemed to reaffirm the democratic system. Indeed, the armed forces commander, General Jorge Moreira Rojas, appealed to government and opposition politicians to remain calm "for the good of the image of Bolivian democracy."

In one area at least, Bolivia's economy made a better impression of stability in 1990 with an annual inflation rate well below 15 percent, the lowest in Latin America. In other areas, however, economic prospects were less encouraging. A study found that during the 1980s the informal sector of the economy increased 10 percent, to 55 percent of all jobs, while unemployment increased drastically and real wages sharply. Growth of GDP in 1990 was expected to be less than 2.5 percent. Moreover, some observers expected 1991 to be a year of conflict between the workers and the administration as a result of higher fuel prices and the government's intention to proceed with plans to privatize most state-run enterprises and to allow foreign companies to develop natural resources.

March 1991
Rex A. Hudson

Data as of December 1989