Deadly Consequences: How the IMF Provoked Bolivia Into Bloody Crisis

Editor’s note: As Multinational Monitor was going to press, an indigenous revolt in Bolivia overthrew the country’s government and left the future of the country uncertain. The insurrection of 2005 echoed the protests against corporate-friendly policies of the International Monetary Fund two years earlier, which are detailed in this story. We will have an account of the 2005 government overthrow in our next issue.

La Paz, Bolivia — 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 Sánchez 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, Sánchez 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. Sánchez 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. Sánchez 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 Sánchez 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 a.m., about 100 of them marched into the plaza itself, chanting their demands at the windows of the Presidential Palace where Sánchez 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, the tense situation in the 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 of American States claims that it was the police who fired 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 Sánchez 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 the absence of police throughout the city triggered a wave of rioting and 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 Sánchez de 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 Schultz 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.