On the morning of Thursday, 29 August 1985 the government of Bolivia presented Supreme Decree no. 21060 to the nation. The 166 articles of this charter for a ‘New Economic Policy’ constituted the most radical shift in planning and policy in the country for over thirty years. Wages in the state sector were to be frozen for four months of a year in which inflation was expected to exceed 15,000 per cent while all controls on prices were annulled; the central enterprises of a state system that controlled over sixty per cent of the economy were to be broken up, ‘rationalized’ according to strict criteria of profitability, and deprived of legal and economic protection from privatesector incursions; the peso was floated and underwent an immediate devaluation of some hundred per cent; subsidies of basic foodstuffs and gasoline were lifted, resulting in price rises of up to a thousand per cent; exchange controls were removed and the hegemony of the dollar re-established as government policy; tariffs were lifted wholesale, threatening many sectors of a weakling local industrial circuit and the thousands of jobs that it provided; and the long-respected, legally enshrined guarantees for public-sector employees were declared void, to be replaced by the practice of ‘relocation’, a transparent euphemism for the power to fire at will.

Unsurprisingly, the decree met with an immediate and anguished response that extended well beyond the unions. Within two days a forty-eight-hour general strike was declared. It was later prolonged to seventy-two hours, and when the government announced that it would not negotiate any part of its programme and began to fire droves of public employees, the stoppage was made indefinite. After two weeks of deadlock and virtual paralysis of the national economy, constitutional guarantees were suspended under a state of siege, troops invested the mines and city centres, demonstrations were outlawed and broken up. One hundred and seventy-four leaders of the Central Obrera Boliviana (cob) were detained and sent to prison camps in the jungle whilst others either slipped out of the country or engaged in clandestine organization.

Over the last decade we have been accustomed to scenarios such as this in Latin America: the declaration of unqualified neo-liberal economic policy, matching or even exceeding the demands of the imf, and necessarily imposed by military force. It is an image of the 1970s, associated most closely with the vicious and calamitous failure of militarism in Chile, Argentina, Uruguay and Brazil to resolve the structural crisis of the economy by imposing the ‘logic’ of the market at the point of a bayonet. But the Bolivian case is distinct. It comes over a decade after General Pinochet made the first concerted application of the pristine theories of the Chicago School and several years after their manifest failure. Moreover, decree 21060 was introduced not by a military junta but by a constitutional regime elected only a month before. The new president, Víctor Paz Estenssoro, certainly possessed a highly dubious political record and could in no sense be accounted a card-carrying member of that newly buoyant political current which celebrates the ambiguous merits of being tagged ‘Latin American Social Democracy’. Yet Paz owed his assumption of office principally to the fact that he was the leading architect of the ‘National Revolution’ of 1952 which had erected the economic system he now proposed to dismantle more comprehensively than any of his predecessors, military or civilian.

Paz’s stance is not as anomalous as might at first appear, having already been taken by Belaúnde in Peru between 1980 and 1985. It is also similar to the line that is being more diligently directed by Febres Cordero in Ecuador, and displays more than a few similarities to the ‘emergency programmes’ of the post-military administrations of Sanguinetti in Uruguay and Alfonsín in Argentina. Yet the Bolivian case still remains extraordinary: not only is undiluted capitalist austerity dismantling a state-based political economy which, despite its multiple weaknesses, retained extensive support; it also follows a period of nearly three years of attempted reform by a regime composed of the forces of the traditional Left. How is it, then, that in the epoch of social pacts (concertación), following the manifest failure of unabashed neo-liberalism elsewhere, without the political advantages provided by a fresh transition from dictatorship, and in a country with an extremely powerful union movement built around the structures and traditions established after 1952, such a project could be undertaken by an elected regime? Naturally, any explanation of what appears to be a recurrent crisis in Bolivia must assign due importance to both structural and conjunctural factors. Here we will tend towards a condensation of longer-range developments, but some attention must be paid to the immediate circumstances of Paz’s rise to power.

The victory of the Movimiento Nacionalista Revolucionario (mnr) following the poll of July 1985 was celebrated by the press and chancelleries of the West as yet a further indication that the process of Latin American ‘redemocratization’ was fully under way. For the first time in the history of Bolivia—a state notorious for its political instability, incessant coups and insurgent syndicalism—an opposition party had won an election. Furthermore, there was a certain statesman’s comfort to be derived from the fact that this change fell within a familiar political tradition. The outgoing president, Hernán Siles Zuazo, leader of the mnr de la Izquierda (mnri) and the reformist coalition built around it to form Unidad Democrática y Popular (udp), had served as president twice before (1952 and 1956–60), had personally led the insurrection of April 1952 and had overseen the eventual removal of the military from power after eighteen years in October 1982. His successor, the seventy-eight year-old Paz, belonged to the same tradition and had the same political roots—entering congress in 1938, occupying the presidency on three occasions (1952–56, 1960–64, and 1964), and possessing the capacity to sustain the populist rhetoric of the revolutionary era while promising that his faction of the mnr would now engage in decisive but measured adjustments to the post-1952 system. The distance between the two administrations was widely judged to be one of style and nuance rather than fundamental content. As a skilled and veteran caudillo, Paz would obtain fiscal sobriety whilst retaining sufficient popular backing to avoid a collapse of public order. The age of these protagonists, and the evident exhaustion of the model they had instituted, strongly suggested that this would be the last modulated cycle of a national political strategy rooted in the past.