WASHINGTON’S
RAVE
REVIEWS
OF BOLIVIA’S
New Economic Policy almost never consider the
country’s most important source of revenue and employ-
ment: coca, the raw material of cocaine. Bolivia is the second
largest producer of coca in the world, behind neighboring
Peru. According to Samuel Doria Medina, an economic
advisor to Bolivian president Jaime Paz Zamora, coca gener-
ates roughly $600 million for the cash-starved economy-an
amount equal to the value of all other exports combined.
Others place the value at between $400 and $500 million.
These dollars help boost the country’s foreign exchange
reserves, which in turn may be used to finance critically
needed imports and service the foreign debt.
The Bolivian cocaindustry employs approximately 75,000
families and, in a ripple effect, leaf production has created
another 175,000jobs unrelated to the coca business. Accord-
Peter Andreas is a research associate at the Institute for
Policy Studies in Washington.
Miners’ wives protest in La Paz’s Plaza San Francisco.
Neither hunger strikes nor general strikes were able to
block the government’s radical restructuring of the
economy
U.S. soldier and Bolivian cargo handler unload 90 tons
of ammunition and explosives for the drug war
ing to Flavio Machicado, Bolivia’s former finance minister,
“If narcotics were to disappear overnight, we would have
rampant unemployment. There would be open protest and
violence.”
The overwhelming importance of coca-both for the
Bolivian financial system and the overall stability of the
economy-fails to penetrate the policy debate in Washing-
ton largely because any discussion of coca is confined to the
narrow realm of drug control policy. Dozens of congres-
sional committees and government agencies endlessly de-
bate how best to attack the coca supply. Countless State
Department reports and congressional hearings document in
painstaking detail the number of coca processing labs de-
stroyed andcocacrops eradicated in order to show “progress”
in the drug war.
Meanwhile, across town from Capitol Hill, at the Inter-
American Development Bank, the IMF and the World Bank,
Bolivia’s debt service record, export earnings, inflation
levels, and economic growth rates are carefully tabulated.
The glossy reports they produce to justify new loans and
credits rarely even mention the word coca.
In effect, they are rewarding an economic performance
that is intimately tied to the coca export economy. When the
REPORT ON THE AMERICAS 14New Economic Policy was initiated in 1985, the Bolivian
government instituted several measures that facilitated the
absorption ofcoca revenues into the financial system, includ-
ing loosening the disclosure requirements of the central bank
and declaring a tax amnesty for repatriated capital. New laws
prohibited official inquiries into the origins of all wealth
brought into Bolivia, and tellers at the central bank were not
allowed to question the source of dollar deposits.
The government also created a daily foreign exchange
auction, called the bolsin, which allowed the central bank to
compete with the parallel foreign exchange market for coca
dollars. “We were bringing the street rate into the official
rate by letting the difference between the two disappear,”
explains former central bank president Javier Nogales. “We
knew that the smaller the gap, the greater the influx of
dollars…” In other words, as economist Humberto
Compodonico puts it, “In effect, the Bolivian state and the
banking system legalized dollars from drug trafficking.”
As planned, these measures boosted Bolivia’s foreign
exchange reserves, which in turn helped stabilize the cur-
rency and stop hyperinflation. Compodonico notes that,
“The IMF’s neoliberal recommendations for exchange rate
policy coincide with the government’s need to capture dol-
lars from the drug trade.”
The coca economy has also cushioned the impact of the
New Economic Policy by absorbing many of those left
unemployed as a consequence of the government’s harsh
austerity measures. While the official unemployment rate
jumped to twenty-five percent, employment in the coca
industry tripled between 1980 and 1986. Unemployment has
since risen still higher, providing a steady source of cheap
labor for the coca economy.
Although the austerity-induced impoverishment of the
work force helps fuel the coca trade, in 1987 the World
Bank’s Bolivia officer called that nation “a country that for
the first time is functioning in an orderly and logical man-
ner.” The IMF wears equally powerful blinders: When asked
how the Fund is dealing with the links between poverty and
drugs, a spokesperson responded, “We haven’t looked at
poverty in Latin America in this context.”
Bolivian officials who manage the New Economic Policy
are equally willing to perpetuate this game of coca-denial. In
an attempt to woo foreign credit and investment, the Bolivian
government ran a special advertising supplement in the New
York Times in early May. The two-page spread was filled
with graphs, charts, and dozens of quotes from prominent
officials applauding Bolivia’s economic performance. The
coca industry, the quintessential expression of the market-
driven private enterprise the advertisement so lavishly praises,
is predictably ignored.
Though Bolivia’s free market cheerleaders are silent
about coca, the future of its much touted economic model
will continue to be closely tied to the fate of the coca export
industry. “For Washington, Bolivia has become a showcase
of what other countries in the region could accomplish if free
market principles are allowed to run their economies,” says
political scientist Eduardo Gamarra. But, he warns, “several
prominent economists have argued that…any downturn in
the coca-cocaine economy could have grave consequences
for the continued success of the New Economic Policy.”
Luckily for the promoters of the Bolivia model, the anti-drug
campaign has barely dented the coca trade.
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