Bolivia Goes East

...As the current model demonstrates, an exclusive focus on either strategy leads to failure...

...Hyperinflation was averted, though inflation has recently been creeping back...

...And it's legal for me to do so...

...And he went on to count the ways: Poland, he insisted, was a country with all sorts of natural advantages-skilled work force, superb location, considerable resources, and so forth...

...Economist Rolando Jordan, on the other hand, argues, "Bolivia can earn far more from well-run and competitive state enterprises than it could ever make from royalties on private investment...

...Peasant farmers, the largest social group and also the poorest, must be included in the development of alternative strategies, particularly to increase local food production.' 6 While many economists concur with Nufiez de Prado's proposals, the role of the state in such an alternative development process remains under debate...

...Lawrence Weschler is a staff writer at The New Yorker...

...On another occasion he commented in passing that six million people had no business trying to eke out a living upon such tragically impoverished terrain-that that was the country's fundamental problem...

...I interviewed Sachs at length at that time for several articles I was writing on Poland...

...To tell you the truth," he replied, "no one knows...

...The failure of the model demands enormous imagination from the country's workers," says Victor L6pez, executive secretary of the Bolivian Workers Confederation (COB...

...When I leave Bolivia, I'm happy to take it home for a month because when I get back I know it's going to have the same value...

...A plan-and a resume...

...His A Miracle, A Universe: Settling Accounts with Torturers will be published in paperback this fall by Penguin...

...I showed a clipping of the piece to a senior official in Walesa's entourage-a longtime oppositionist and supporter of Poland's workers...

...Poles were understandably dazzled at the prospect...

...I want to be able to show it to the prime minister back in Warsaw so he'll know what to do when we get to that stage of the plan...

...Do you mind ifI keep this...

...Thus, for example, to those who doubted the ability of average Poles to master the sudden complications of the capitalist system, Sachs insisted that such a system was as natural as Bolivia's apparent economic stability rests on a rather shaky base...

...Economist Hormando Vaca Diez feels the state should assume the But there's a reason you have to do that, and that's because only with stable prices do you have any sort of chance at surviving into the future...

...common sense: "The peasant Indians in the Bolivian market were able to operate the free exchange rate perfectly well within one day...

...When last seen in print, however, he was deeply involved in discussion with Soviet planners and government officials, this time mapping out a Bolivia-style rescue plan the size of a virtual continent...

...He saw no end to its potential, once it got its house in order...

...It would take forty years with an annual growth rate of 3.5% to restore income to 1978 levels...

...But Sachs insisted that the transformation had to be sudden and almost convulsive...

...He insisted that the short-term shock reforms he was proposing would be necessary whether one eventually wanted to end up with a Swedish-style social democracy oraThatcherite model-and he often implied a preference for the former...

...And cocaine-everyone is doing the best they can to cut off that source of income, including the Bolivian government...

...A strategy based on domestic needs would require a gradual redistribution of income toward the poor-precisely what the NEP decreed to be incompatible with development...

...I'm reminded of an incident which occurred during Lech Walesa's first triumphant tour of the United States, back in November 1989...

...So you have an intrinsic deep economic problem there...

...JEFFREY SACHS ARRIVED ON THE SCENE IN Poland in the early fall of 1989, within weeks of Solidarity's overwhelming triumph in the June parliamentary elections-a veritable blast of can-do American energy and self-confidence...

...He slid the clipping into his coat 'pocket...

...Tin prices collapsed at the beginning, no one buys Bolivian tin anymore...

...Now, here," he continued, "the situation is completely different...

...And with prices rising and wages held down (a key element of the plan), the standard of living for many has dropped significantly though a good quarter of the population is doing quite well...

...Sachs himself, meanwhile, has continued to support and consult with Poland's leaders...

...And it's all so complicated because Bolivia happens to be a country that is at 14,000 feet, that isn't in the center of Europe, that produces three things-tin, natural gas, and cocaine...

...What we need are alternative ways of approaching the problems most people face...

...Oh dear...

...At the same time, however, the country experienced a harrowing recession, far worse than anyone predicted and from which it has yet to emerge...

...push the plan all the way...

...Natural gas no one pays for anymore because it goes to Argentina, and Argentina is bankrupt, so they don't pay for Bolivian gas...

...A shift in focus to domestic needs would not have to imply abandoning the development of overseas markets...

...Unless Bolivians reach a consensus for fundamental change, the nation will likely continue on a path which offers no long-term improvement for the majority of its people...

...Sachs-only 34 and already a full professor at Harvard-presented himself as the proverbial Man with a Plan...

...REPORT ON THE AMERICAS 28Rather than blanket protection of national industry, Nufiez de Prado favors temporary and selective support for local producers to develop their potential, while avoiding the inefficiency and lack of productivity generated prior to 1985...

...Two years have passed, and the results have been, well, mixed...

...He was, in short, no simple Chicago boy...

...Leafing back through my notes, I find that he had much to say about Bolivia...

...Government policy could provide incentives to redirect spending away from luxury consumption and toward production...

...If things have not gone as badly as some had warned, this is in part because the various Solidarity-configured governments have been hesitant to role of protagonist in the economy, while staying out of the management of public enterprises...

...A few days later a prominent Warsaw columnist opined to the effect that "Professor Sachs is proposing to cut off the tail of the Polish economy-at the neck...

...Addressing Solidarity's parliamentary caucus, he recalled approvingly how at one point Bolivia's finance minister, suddenly seeing the light, had commented, "Stemming hyperinflation is like cutting the tail offa cat: it's better to do it in one fell swoop than through a succession of tiny slices...

...Further rhapsodizing on the effects of that transition, Sachs averred as to how "In Bolivia, they went from a rationed exchange rate to a convertible currency in a single day, stabilizing their currency in the process...

...Two aspects of that resume particularly commended themselves to the floundering Poles: He had been centrally involved a few years earlier in helping to formulate an emergency shock rescue in Bolivia which succeeded in bringing hyperinflation to a dead halt, virtually overnight...

...The currency did stabilize, markets filled with all manner of goods, exports boomed...

...if you are brave, if you are gutsy, if you do everything right, you will end up with a miserable, poor economy with stable prices...

...Economist Arturo Nufiez de Prado, planning minister under the center-left UDP, believes that priority should be given to a limited number of goods and services designed to meet basic needs, including food, clothing, health, education and housing...

...It went on to detail the mass arrests of union leaders and their incarceration in Amazonian internment camps...

...and it could support small artisans and vendors who have little capital or access to credit...

...The country's economy was careening wildly, veering inexorably toward hyperinflation, and Solidarity's new legislators were utterly unprepared for the powers and responsibilities which were suddenly and unexpectedly being thrust upon them...

...I always told the Bolivians, from the very beginning, that what you have here is a miserable, poor economy with hyperinflation...

...AT ONE POINT AROUND THIS TIME, I ASKED Sachs how, irrespective of any favorable macroindicators, the poorest classes were doing back in Bolivia...

...One morning during that week, a story buried deep in the New York Times was headlined "Bolivia Declares State of Siege after Breakdown in Strike Talks...

...Secondly, although in many ways a straightforward neoliberal, he had no use for the banks and regularly advised his clients on how to defer debt payments and concentrate instead on their own economy's domestic needs (which, granted, might turn out to be increasing foreign investment and exports...

...They still claim to be intending to do so in the months immediately ahead...

...Poles were as surprised as anyone to find themselves suddenly focusing their national debate on fantasies about what might have happened in such a far distant land...

...Young Dr...

...Oh dear," he smiled grimly...

...These priorities, he asserts, should be supported by a progressive taxation system, and imports should be restricted to what is essential for increasing production of these basic goods...