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The most recent drastic decline of the Bolivian economy began in the late 1990s when prices of Bolivian exports dropped due to reduced international demand.
"[Problems in the] financial systems in Southeast Asian countries in June 1997 continued in Russia in August 1998 and finally hit Brazil towards the end of 1998. This crisis was felt in Bolivia primarily due to the decrease in external trade and flow of external capital…The Central Bank of Bolivia devaluated the currency several times in order to recover competitiveness of the export sector; however, these devaluations did not have the desired effect" (Fiedler and Pastor, 2002).
Several other events contributed to the further demise of the Bolivian economy. In 1998, the new Customs Law was enacted to control smuggling, resulting in a decrease of informal trade. Because many informal merchants and producers obtained the materials for their trade through contraband, greater control at the borders was detrimental to this micro-entrepreneurial sector. Moreover, Bolivia has "managed to reduce the illegal production of coca leaves, but has been less successful in providing viable alternative income-earning opportunities for those who directly or indirectly benefited from the cultivation of the crop" (World Bank, 2004).
Also in 1998, strong climatic changes, such as droughts and floods in different regions, destroyed farmers' assets and crops, which forced them to sell their products at very low—and sometimes zero-profit—prices. Furthermore, social protests of recent years fueled by the Cochabamba water crisis, economic policies regarding gas reserves, and the government's coca eradication program escalated the country's economic decline. Massive and repeated roadblocks, destruction of roadway infrastructure, and local and national strikes debilitated the economy by preventing the products of rural farmers and livestock breeders from reaching the marketplace. Much needed income was cut off to these rural communities, leaving them in a desperate situation.
Due to the drastic loss in income of so many Bolivians, several microfinance institutions (MFIs) closed their branches in the Cochabamba area, and a strict screening process of clients was started in the microfinance market. Many Cochabambans do not qualify as borrowers because they are deemed too risky due to their lowered income. MFIs have increasingly began to demand real collateral, and have started to only offer services to clients that can provide such guarantees. These new guidelines have made it impossible for many Bolivians in the Cochabamba area to obtain financial services.
The difficult events pertaining to the Bolivian economy in recent years have left the richest 10 percent of the Bolivian population earning 25 times more than the poorest 40 percent. Without education or access to financial services, the disparity between the rich and poor is not easily changed. Whereas regulated institutions find it difficult to offer financial services in the Cochabamba area due to the inherently high costs involved, NGOs on the other hand have a better capacity to offer microfinance services to struggling entrepreneurs and re-stimulate the Bolivian economy.
Microfinance services offered by nonprofit organizations have shown promise in helping the poor in Cochabamba. It is therefore at the forefront of development strategies utilized to help Bolivians pull themselves out of poverty. The Inter-American Development Bank reports, "thanks to competition, lending rates are now far lower in Bolivia than in any other country in the Hemisphere" (Fiedler and Pastor, 2002). Although microfinance shows much potential, there are still many hurdles with regard to consolidation, growth, and expansion of the movement.
The CIA World Factbook states that well over one million people over the age of 15 in Bolivia are unable to read or write (2006). David de Ferranti, former vice president of the World Bank, noted that not having access to schools and not having acquired the training and skills to be able to choose one's job contributes largely to the tragic conditions faced by many Bolivians. He adds that if afro-decent Bolivians were to have equal access to schools and skills training, it would "result in an economic expansion of 36.7 percent" for the entire country.
The socioeconomic crisis that crippled Bolivia for the last decade is still occurring today; however, Bolivia is currently on a slow road to economic re-growth. With access to skills training and financial services, the prospect of rising above the poverty line becomes a possibility for many Cochabambans, and these services will hopefully pave the way to bringing economic vitality to Bolivian communities in the coming years.
By partnering with several, local microfinance and small business development organizations in the Cochabamba area, FSD is able to increase training and microfinance services available to Bolivian citizens, thereby empowering socioeconomically excluded families and contributing to a powerful grassroots movement. Whether you decide to work with lending cooperatives for women and farmers or increase export markets for artisans, your experience with FSD will bring you to the frontline of microbusiness development.
Read more about Microfinance & Microenterprise programs and opportunities initiated by our Community Partners in Bolivia.
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