Faced with runaway inflation, which reached an annual rate of 14,000% in August 1985, the government abandoned controlled exchange rates, abolished price controls, liberalized external trade, and instituted more restrictive monetary and wage policies. The result was sharply lower inflation and interest rates, and a more stable economy, although the shocks of this liberalization were felt through government layoffs and falling consumer buying power.

 

More importantly, Paz was able to forge a fundamental consensus among competing political parties in support of a continuing democracy. In 1989, despite a hotly contested presidential race, power passed from the MNR to the left-wing movement of the Revolutionary Left (MIR.) The peaceful transfer of power from one party to another was a milestone in itself. An equally hopeful sign was the fact that the MIR leader, Jaime Paz Zamora, was able to hold together a coalition with the right-wing national Democratic Alliance (ADN) to serve a full four-year presidential term. In Bolivia, this is a major accomplishment.

The elections of 1993 brought the MNR back to power, with Gonzalo Sánchez de Lozada assuming the presidency. Sánchez chose as his running mate Victor Hugo Cárdenas, an advocate for Bolivia’s Aymara-speaking Amerindians. While some saw the move as a cynical ploy, others expressed hope that Bolivia’s long-suffering native population might be brought into the political system. Sanchez de Lozada’s administration embarked on a wide-ranging program of reforms that included decentralization of government, tariff reduction, educational reform, and most notably, a major privatization campaign. State enterprises that were privatized included the national railroad, the state-owned airline, and the nation’s electric power generation facilities. Sanchez de Lozada’s plans also included privatization of Bolivia’s mining sector through joint ventures with foreign investors. In spite of continued economic stabilization and progress, the government’s policies drew protests and labor strikes leading to the declaration of a 90-day state of siege in 1995.

In 1997, Gen. Hugo Banzer, the former dictator who had tried unsuccessfully to regain power by legal means since his ouster in 1978, came in first in the June presidential elections and, in the absence of an electoral majority, was chosen by Congress to be the nation’s next president. Banzer, a conservative democrat, pledged to halt his predecessor’s privatization program while improving basic services and expanding jobs. Shortly into his term, Banzer faced growing social unrest resulting from an economic crisis and the government’s inability to fight corruption and implement an effective anti-narcotics program. Due to health reasons, Banzer resigned in 2001 before the end of his term and was replaced by his young vice president Jorge Quiroga who served as a caretaking president until Gonzalo Sánchez de Losada, the plurality winner in the June 2002 election, took office for the second time in his life. After failing to win a majority of the popular vote, Sánchez de Losada was elected by Congress over second-place finisher, indigenous and peasant activist Evo Morales. Sánchez de Losada’s second term was marked by social and political upheaval. One year into his term, the economy was still stagnant, and social and racial tensions were keeping the country in turmoil.

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