Deadly Consequences
How the IMF Provoked Bolivia into
Bloody Crisis
by Jim Shultz and Lily Whitesell
Multinational Monitor, May/June
2005
Through the large windows of the International
Monetary Fund's office in La Paz, you can see down to the rooftop
where Ana Colque, a 24-year-old student nurse, was shot and killed
in February 2003. Army sharpshooters sent a bullet through her
chest during a military assault intended to quell public protests
against an economic belt-tightening package imposed on Bolivia
by the IMF.
The story of Febrero Negro - Black Friday
- is Bolivia's story but it is also one that echoes in the experiences
of many other poor nations across the world.
For two decades, South America's poorest
and most indigenous nation has been one of Latin America's chief
laboratories for an experiment in market-driven economic reforms
which promised prosperity by opening the nation's doors to foreign
investment. But the bloody real world results of this economic
experiment have proven a far cry from what the IMF hypothesized
would occur.
IMF TO BOLIVIA: CUT THE DEFICIT
Bolivia, like many poor countries and
a good many rich ones, relies on borrowing to finance its annual
public budget. In the years leading up to Febrero Negro, however,
Bolivia's budget deficit shot through the roof, from 3.3 percent
of national income in 1997 to 8.7 percent in 2002.
Bolivia's ballooning deficit was an Andean
echo of the recession-driven deficit explosion underway just around
the corner from the IMF headquarters in Washington, where increased
borrowing was justified by the Bush White House as a way of jump-starting
economic growth.
IMF officials would not take the same
generous view toward Bolivia's economic problems. As 2003 began,
the Fund decided it was time for Bolivia to get tough on its deficit,
demanding a target of 5.5 percent of GDP (gross domestic product)
for the following year - a cut totaling more than $250 million,
8 percent of the national budget.
After the February fiasco, IMF officials
would insist that the Bolivian government had been in full agreement
with the Fund's 5.5 percent deficit target.
Yet Bolivia's just-deposed president,
Carlos Mesa, who was vice president in February 2003, says that
the government told Fund officials that the cut they were asking
for was too drastic. Bolivia proposed an alternative target of
6.5 percent.
Bolivia's national budget director, Edwin
Aldunate, says that IMF officials were unrelenting. "The
IMF insisted on 5.5 percent. I told them right here in this office
that [the spending cuts and tax increases required] could provoke
serious social problems."
Exactly how obligated was Bolivia to follow
the IMF's suggestions? Fund officials say that countries are sovereign
to accept or reject IMF recommendations. However, they made it
clear that if the Bolivian government didn't meet the 5.5 percent
target, the IMF would refuse Bolivia a long-term lending agreement.
Without such an agreement, the government
risked not only Fund loans but also budget assistance from Germany,
Denmark and Sweden, according to George Gray Molina, who served
as a senior staff member at the Bolivian government's research
office on economic issues, UDAPE, and now works with the United
Nations. IMF officials "tell you that we own the agenda,"
Molina says. "Strictly speaking that is true. But if we don't
close a deal, we are up against the wall every month."
"A TERRIBLE ERROR"
Up against that wall, and looking for
a way to cut Bolivia's deficit by a quarter of a billion dollars,
government officials drew up some options.
The first alternative developed was for
new taxes on foreign oil producers, since it was the privatization
of oil and gas in the 1990s that helped plunge Bolivia into deep
deficits. The proposals developed would have generated as much
as $160 million per year, says Molina.
Plans for the new gas tax were soon upended,
however, when Bolivia's oil and gas minister returned from a meeting
with an international consortium, Pacific LNG, regarding a plan
to export Bolivian gas to California. The minister called the
proposed tax "impossible" and "crazy," according
to Molina.
President Sanchez de Lozada, eager to
project an image of stability to foreign investors, quickly took
oil and gas taxes off the table. Looking for another way to bridge
the deficit, Sanchez de Lozada cast his eye toward the second
proposal developed by his advisers, a new progressive income tax
which would apply to the wealthiest 4 percent of the population.
But the new tax on the most prosperous would generate only about
$20 million each year. Sanchez de Lozada then ordered his economic
advisers to expand the tax all the way down to people earning
two times the minimum wage.
People with the lowest incomes, such as
teachers, police and nurses, would pay an amount equal to two
additional dollars per month. For people like the president, that
was barely pocket change. For many other Bolivians, it was enough
to buy food for three days. Sanchez de Lozada announced the new
tax in a speech to the nation on the evening of Sunday, February
9.
Says Molina, "It was a terrible error,
an error of politics and of economics."
How grave that error was would soon be
demonstrated in blood and violence.
Within three days, it was as if the Washington,
D.C. police and the U.S. Army had begun firing at one another
from across Lafayette Park in front of the White House. In the
heart of the nation's government, on the steps of the Presidential
Palace and the National Congress, Bolivia's two main armed forces,
the army and the security unit of the national police, were engaged
in open warfare. The announcement of a tax increase by the nation's
president sparked a chain of violent events that would end with
the deaths of 34 people.
OPPOSITION ERUPTS
Popular reaction to the government's proposal
to tax the working poor was as swift as it was negative. The Monday
morning after the president announced the tax hike, the country's
main opposition leader, Evo Morales who finished just two points
behind Sanchez de Lozada in the presidential elections seven months
earlier called on the Bolivian people to protest the tax proposal.
Over the next 24 hours, that call for resistance was joined by
the country's main national labor organization, labor and civic
groups in Cochabamba, and a key unit of the national police force,
Grupo Especial de Seguridad - GES.
As soon as the president made his tax
announcement, it became the main topic of discussion at police
stations throughout the capital. The rank and file cops' reaction
was reflective of Aymara culture, where community decision-making
is deeply respected, closed to outsiders and given the final word.
Emerging from their discussions, the GES police announced that
they would oppose the government's tax proposal and demanded a
meeting with the Minister of Government.
Although on Tuesday the Minister of Government
had said the government's tax proposal was "non-negotiable"
and that he would not hold talks under pressure from the police,
he did nonetheless enter into negotiations the next day.
The GES headquarters sits just across
the capital's central square, Plaza Murillo, from the Presidential
Palace and National Congress building. As the Minister of Government
entered at 6 a.m. on Wednesday, he encountered a police force
fully armed with pistols, tear gas, rifles and a variety of assault
weapons. The police demanded that the proposal be modified to
affect only those earning the equivalent of $660 per month and
higher, the nation's affluent. If the government had said yes
to that, the police say they would have ended their protests.
David Vargas, the GES major who led the
police protests, says that in response to their demands, the Minister
told them, "No se puede, [It isn't possible]. [The tax]
can't be withdrawn. The president can't
do that. We have a commitment with the International Monetary
Fund."
POLICE AND SOLDIERS FACE OFF
With the failure of the sunrise negotiations,
the
Human Rights Permanent Assembly, Bolivia's
leading human rights organization, recounts, events in Plaza Murillo
began to spiral out of control in a way that neither the government
nor the police had ever intended.
Throughout the morning, police around
La Paz abandoned their posts and headed for the headquarters.
At 10 am., about 100 of them marched into the plaza itself, chanting
their demands at the windows of the Presidential Palace where
Sanchez de Lozada and his cabinet were meeting. At this point,
the protests, while angry, remained nonviolent.
At noon, students from a nearby high school,
Colegio Ayacucho, entered the plaza to join the protests. Approaching
the Presidential Palace, they began to throw rocks at the windows,
drawing cheers and applause from the police. Military guards ran
out onto the Palace balconies and fired tear gas. The students
ran to the other side of the plaza and called on the police to
protect them. "The [tear gas] reached the police headquarters
and was taken as an act of provocation, and [the police] fired
tear gas back," says Vargas.
Moments later, as many as a thousand military
troops, armed with M-16 rifles, rocket launchers and other sophisticated
assault weapons, began to occupy the half of Plaza Murillo closest
to the Presidential Palace. Police and civilian protesters, who
filled the other half of the plaza, began to shout obscenities
at the soldiers.
Shortly after 1 p.m., the Human Rights
Permanent Assembly mediated a meeting between the government and
the GES Police. At 2 p.m., as the negotiations continued, r .1
the tense situation in the 1 plaza finally reached a flashpoint.
Police and soldiers again began launching tear gas at one another.
Then tear gas turned to live rounds. A subsequent report by the
Organization American States claims that it was the police who
tired bullets first. The police claim it was the army. By the
end of the day, the Human Rights Permanent Assembly documented,
18 people would be dead - police, military, civilians and even
a young student. Just after 4 p.m., President Sanchez de Lozada
went live on television and radio to announce that he was withdrawing
his tax plan, but it was too late. The combination of public rage
at the killings in the Plaza and * 00 the absence of police throughout
the city triggered a wave of rioting and : 4 vandalism. DEATH
ON A ROOFTOP
The next morning, the residents of Bolivia's
capital awoke to streets filled with soldiers and a swirl of public
protests demanding the president's resignation. Protests calling
for Sanchez dc Lozada's departure were underway in the cities
of Santa Cruz, Cochabamba and Oruro.
In La Paz, another crowd of protesters
assembled outside the doors of a sixteenth century Catholic Church
in Plaza San Francisco. Throughout the morning, military police
sought to break up the gathering with tear gas and rubber bullets.
Across the street from the church sits a three-story-high building
covered in crumbling green stucco. Just after noon, a 25 year-old
handyman, Ronald Collanqui, climbed to the roof to recover his
tools. He was shot by army sharpshooters firing from a window
across the street. As Collanqui lay dying on the roof, the building's
doorman called for an ambulance.
Ana Colque was a 24-year-old student nurse.
A single mother with a 22-month-old son named Luis, she lived
with her mother and father. Ana had a batch of medical supplies
on hand and had dispensed first aid to the wounded all day Wednesday.
Her family asked her not to go out Thursday morning, but Colque
left early, telling her mother to take good care of her baby son.
At 1:20 that Thursday afternoon, Colque
arrived at the green stucco building in an ambulance marked with
a red cross and wearing a white nurse's uniform. She climbed up
the stairs to the roof.
As Colque approached the handyman's body,
a military sharpshooter fired from a small window just a short
distance away. The shot pierced her chest. Ten minutes later she
left in the same ambulance in which she arrived and died shortly
afterwards in the hospital.
The soldiers responsible for both deaths
would later claim that they had mistaken both the repairman and
the uniformed nurse as sharpshooters and had shot in self-defense,
according to an investigation of the case by the Human Rights
Permanent Assembly.
IMF officials from Washington were in
La Paz during the days of violence sparked by their demands for
deficit reduction. According to several people who met with the
IMF mission, as violence overtook the streets, the officials checked
out of their rooms at the five-star Plaza Hotel and headed for
the La Paz airport to leave Bolivia, a route that would have taken
them right by the building where Ana Colque was shot and killed.
The next day the IMF issued a public statement saying that it
"regretted the tragic events in Bolivia" and expressing
its interest in continuing to negotiate with the Bolivian government.
OUR BUDGET WILL NOT BE AN IMF BUDGET
By Friday morning, both the violence and
the protests had ceased. As the president declared to the nation,
"Our budget will not be a budget of the International Monetary
Fund," the IMF moved quickly to deny that it bore any responsibility
for the violence. However, it continues to push the Bolivian government
to reduce its deficit and, as of early 2005, has still not agreed
to a program that would entitle Bolivia to a long-term IMF support
package.
The IMF and the World Bank operate in
a world of theory. Over and over again, when confronted with realities
on the ground that fall short of their theories and predictions,
IMF and World Bank officials place the blame not on the theory
but on faulty implementation by poor governments.
But the options open to poor governments
are much more difficult than the IMF is willing or able to admit.
Cutting public expenditures by any large degree cannot be done
without affecting the poor who rely on public services, or provoking
huge rebellions.
February 2003 in Bolivia gives clear evidence
that the IMF is shockingly numb to the pressures and the pains
it inflicts on poor countries. Bolivia is not the first country
where the IMF squeezed to the point of tragedy. Regrettably, it
is not likely to be the last either.
Jim Shultz is executive director of the
Cochabamba, Bolivia-based The Democracy Center. Formerly with
The Democracy Center, Lily Whitesell now works with a non-profit
advocacy group in Maryland. This article is based on The Democracy
Center's book, Deadly Consequences.
International Monetary Fund (IMF) & World Bank
South
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