DEADLY CONSEQUENCES
The International Monetary Fund and BoliviaÕs ÒBlack FebruaryÓ
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EXECUTIVE SUMMARY
Through the large
windows of the International Monetary FundÕs office in La Paz, you can see down
to the rooftop where Ana Colque, a 24-year-old single mother, was shot and
killed in February 2003. Army
sharpshooters sent a bullet though her chest during a military assault intended
to quell public protests against an economic belt-tightening package imposed on
Bolivia by the IMF. She was among
thirty-four people killed during two days of violence that included a shooting
war between national police and BoliviaÕs army directly in front of the
National Congress and the Presidential Palace.
This report tells the
story of BoliviaÕs Febrero Negro, Black February. It is the
story, not just of two tragic days in La Paz, but also of the global economic
system that set that violence in motion.
For two decades,
Bolivia has been one of Latin AmericaÕs chief laboratories for a package of
market-driven economic reforms known as ÒThe Washington ConsensusÓ. It is a set of policies that promise
prosperity by opening a nationÕs doors to foreign investment. In Bolivia, as elsewhere, these
policies have been adopted, not because the public asked for them, but because
they have been made a condition of receiving international aid from the IMF,
the World Bank and other foreign lenders.
This report traces a
path that begins on the desks of economists at the IMF in Washington. It runs through the subtle dance of
coercion between the IMF and poor governments. It ends with the squeezing of the poor beyond their
tolerance and, finally, death on a rooftop. Like many tragedies, this one is a story told in three
acts.
Act One: The International Monetary Fund
and The Politics Of Economic Belt-Tightening
The International Monetary Fund and
its institutional sibling the World Bank were born at the end of World War II,
part of a vision of a global system that could bring stability and economic
prosperity to the community of nations.
The role of the World Bank would be to finance large-scale
infrastructure projects, beginning with the reconstruction of post-war
Europe. The role of the IMF would
be to promote a steady international demand for goods by stabilizing
international currency exchange rates and by making short-term loans to
governments.
Six decades later, the
IMF has a global mission that goes far beyond the one it was originally given,
a setter of global economic policy, more powerful than many governments. In the 1980s, the IMF became the
international exporter of the conservative economic revolutions of US President
Ronald Reagan and British Prime Minister Margaret. Conditions on lending became the FundÕs chief tool for
getting countries to coercing governments to comply.
To its critics,
especially those looking at the Fund and its activities from the perspective of
low-income countries, the IMF is designed to protect the economic interests of
the wealthiest nations and either unwilling or unable to understand the impact
that its policies have on poor ones.
As a result, IMF critics charge, the Fund has only made poor nations
worse off. The economic models
that promise economic prosperity when presented in Power Point in Washington
have, time after time, failed to deliver the goods when actually implemented on
the ground.
The IMFÕs interventions
related to debt and deficit reduction have their roots in the Latin American
debt crisis of the 1980s. As a
result of heavy borrowing and the skyrocketing interest rates at the time, many
countries found themselves so overburdened by debt and so incapable of paying
their lenders that a number of major international banks veered close to
bankruptcy. The IMF loaned
indebted countries money so they could keep paying back those loans, but
requiring reforms such as deficit reduction as a condition
The Fund argues that
deficit reduction is key to helping poor countries achieve economic stability.
Reducing budget deficits means, however, that governments need to either cut
public spending, raise taxes, or both.
Many researchers and poor governments argue that the economic squeezing
forced by the Fund takes already-fragile economies and pushes them over the
edge.
Act Two: The IMF in Bolivia, A Nation
Struggles
To Meet Economic Commands Issued From Abroad
For two decades the
IMF, along with the World Bank, has been one of the chief architects of
BoliviaÕs economic policies. The
policies brought to Bolivia by the Fund include: the privatization of natural
resources and public enterprises; the weakening of labor protections; lowered
taxes on foreign companies; and spending cuts and domestic tax increases to
reduce public debt.
The IMF and Bank
predicted a rosy picture of the economic results that Bolivia could expect from
these reforms Ð a reduction in poverty, economic growth, a reduction in the
public debt. The results however
have been worse poverty, miniscule economic growth, rising unemployment, and an
economy in shambles. The gap
between IMF predictions and Bolivian reality could hardly be wider.
For years the IMF had
pressured Bolivia to take drastic action to reduce its deficit. As 2003 began, the Fund demanded that
the budget shortfall be cut, down to a target of 5.5% of GDP. To comply, the government would have to
come up with a combination of budget cuts and tax increases totalling more than
$250 million.
After the February
fiasco, IMF officials claimed that the Bolivian government was in complete
agreement with the IMFÕs 5.5% deficit target. Yet high-level Bolivian officials, from its current
President on down, say that the Fund insisted on the 5.5% target, despite
warnings such a cut could lead to exactly the kind of violent social upheaval
that struck Bolivia.
Fund officials say
that they only give countries advice, not commands. In reality, Bolivian officials counter, they have little choice
but to follow the IMFÕs suggestions.
Not doing so, they warn, could cost them dearly in international aid
that the government needs in order to survive.
To cut the countryÕs
deficit, Bolivian officials developed two options. The first was a new tax on foreign oil companies, which made
sense since it was the privatization of oil and gas in the 1990s that helped
plunge Bolivia into deep deficits and because those taxes would be passed onto
foreign corporations. The other
proposal was a new income tax on the wealthiest four percent of the population.
Then-President Sˆnchez
de Lozada rejected the gas tax proposal because he feared it would sideline a
gas export agreement the government was negotiating with foreign oil
companies. To make up the difference,
he ordered that the income tax proposal be expanded, to include people earning
all the way down to just two times the minimum wage, salaries equal to $110 per
month.
Popular reaction to
the governmentÕs proposal to tax the working poor was swift and negative. Opposition leaders called for national
protests, and among the groups leading them was a key unit of the national
police force. The low-paid police
and their families would be among those directly affected by the tax. In negotiations with the police, the
government said it could not back down, that it had made a commitment to the
IMF to act.
On the morning of
Wednesday, February 12th, hundreds of police and their supporters began filling
the capital cityÕs central plaza in front of the Presidential Palace and
National Congress. By early
afternoon, the police and the army were engaged in full battle, which escalated
from tear gas, to rubber bullets, to live rounds. By the end of the day eighteen people would be dead and
President Sˆnchez de Lozada went live on television and radio to announce that
he was withdrawing his tax plan.
By then, however, it was too late and the capital descended into a wave
of rioting and vandalism.
The next morning the
streets of BoliviaÕs capital were filled with soldiers and a swirl of protests
demanding the PresidentÕs resignation.
Atop a three story building on the cityÕs main avenue, a 25 year-old
handyman climbed to the roof to recover his tools and was killed by army
sharpshooters. Soon afterwards Ana
Colque arrived in an ambulance, dressed in her white nurseÕs uniform. As she climbed to the roof to
administer aid, she too was killed by an army sharpshooter.
The IMF officials in
Bolivia at the time fled to the airport and left the country. President Sˆnchez de Lozada announced a
series of symbolic government efficiency measures and Bolivia and the IMF
dropped their deficit reduction plans.
Seven months later, Sˆnchez de Lozada was forced to resign in a subsequent
public uprising over the proposed gas export deal. No one has ever been convicted for any of the February
killings.
For Bolivia, Febrero
Negro was a reminder of how high the costs can be when a government refuses to
hear its own people, and when leaders in a political conflict allow it to
escalate into violent confrontation.
It is the International Monetary Fund and the people who work for it,
however, who have the most to learn from Febrero Negro. The
IMF and the World Bank operate in a world of theory, where ideas about how the
world works are laid out neatly on sheets of white paper. When the theories that look so good on
paper turn out to not work quite so well in the real world, the IMF and the
World Bank consistently defend their theories and blame the countries for bad
implementation
Reduced to its most
basic elements, the IMFÕs push for deficit reduction is about forcing an
economic squeeze. When the IMF
squeezes too hard, as it did in Bolivia, it can provoke great tragedy. Yet, the IMF remains seemingly
oblivious of the effects of its actions.
It has no accountability whatsoever to the people whose lives it affects
so profoundly.
In the case of
BoliviaÕs Febrero Negro the IMF was warned in advance of what could happen if
it pressed its demands. Its
officials didnÕt listen. If the
IMF does not learn the lessons of Febrero Negro then it is doomed to repeat that same error
over and over again, with mounting human tragedies each time.