Supreme Decree 21060 ( es, Decreto Supremo 21060, ''DS 21060'', or ''DS Nº 21060''), promulgated by Bolivian President

Víctor Paz Estenssoro Ángel Víctor Paz Estenssoro (2 October 1907 – 7 June 2001) was a Bolivian politician who served as the 45th president of Bolivia for three nonconsecutive and four total terms from 1952 to 1956, 1960 to 1964 and 1985 to 1989. He ran for pr ...

on 29 August 1985, was a legal instrument that imposed neoliberal economic policies in order to end Bolivia's twin crises of international debt and

hyperinflation In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as t ...

. In 1985, under the fourth (and final) term of President Paz Estenssoro, the economic situation in Bolivia was undermined with a galloping hyperinflation (inherited from

Hernán Siles Zuazo Hernán Siles Zuazo (21 March 1914 – 6 August 1996) was a Bolivian politician who served as the 46th president of Bolivia twice nonconsecutively from 1956 to 1960 and from 1982 to 1985. He also briefly served as interim president in April 195 ...

) and the country was unable to pay its debt to the International Monetary Fund (IMF). A plan was drawn by

Jeffrey Sachs Jeffrey David Sachs () (born 5 November 1954) is an American economist, academic, public policy analyst, and former director of The Earth Institute at Columbia University, where he holds the title of University Professor. He is known for his work ...

, Professor at

Harvard University Harvard University is a private Ivy League research university in Cambridge, Massachusetts. Founded in 1636 as Harvard College and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of high ...

, and at that time active as economic adviser to the Bolivian government. Bolivia was the first country where Jeffrey Sachs could test his theories. The IMF approved of the decree's adoption and gave the Bolivian government $57 million in credit. Additionally, the

World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...

began lending money to the country again.

Measures implemented

The main "shock therapy" measures of decree 21060 in Bolivia were: * The linking of the Bolivian economy to the

US Dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...

. The

Bolivian peso The peso boliviano (ISO 4217 code: ) was the currency of Bolivia from January 1, 1963, until December 31, 1986. It was replaced by the boliviano. It was divided into 100 ''centavos''. The conversion rate was 1,000,000 pesos bolivianos to 1 boliv ...

devaluated with 93 percent over one night, in fact installing the US Dollar as currency and denying the country to commit an own

monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...

. Accounts in any currency were authorized and interest rates were freed. * A drastic pushing back of the government shortage. This actually meant adapting

tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and pol ...

s and prices to the "reality", resulting in a price explosion of

goods and services Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doc ...

(e.g. petroleum prices raised to the international level, the price of

gasoline Gasoline (; ) or petrol (; ) (see ) is a transparent, petroleum-derived flammable liquid that is used primarily as a fuel in most spark-ignited internal combustion engines (also known as petrol engines). It consists mostly of organi ...

went from 0.04 to 0.30 per liter). The government ended all

subsidies A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the ter ...

to the

public sector The public sector, also called the state sector, is the part of the economy composed of both public services and public enterprises. Public sectors include the public goods and governmental services such as the military, law enforcement, inf ...

. * The dismissal of two thirds of the employees of the

tin Tin is a chemical element with the symbol Sn (from la, stannum) and atomic number 50. Tin is a silvery-coloured metal. Tin is soft enough to be cut with little force and a bar of tin can be bent by hand with little effort. When bent, t ...

and

oil An oil is any nonpolar chemical substance that is composed primarily of hydrocarbons and is hydrophobic (does not mix with water) & lipophilic (mixes with other oils). Oils are usually flammable and surface active. Most oils are unsaturated ...

companies managed by the government and scaling back the salaries of the remaining third part and

salaries were frozen till December 1985. * The

liberalization Liberalization or liberalisation (British English) is a broad term that refers to the practice of making laws, systems, or opinions less severe, usually in the sense of eliminating certain government regulations or restrictions. The term is used m ...

of the

market Market is a term used to describe concepts such as: *Market (economics), system in which parties engage in transactions according to supply and demand *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an ...

. This include the end of protection of certain destitute sectors by the government. The Bolivian Development Corporation, one of the largest state enterprises, and the National Transportation Authority were dissolved, passing their property on to regional development corporations. These in turn had the task of

privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...

of enterprises. Restrictions on foreign commerce were abolished with the elimination of

prohibition Prohibition is the act or practice of forbidding something by law; more particularly the term refers to the banning of the manufacture, storage (whether in barrels or in bottles), transportation, sale, possession, and consumption of alcohol ...

s and

quotas Quota may refer to: Economics * Import quota, a trade restriction on the quantity of goods imported into a country * Market Sharing Quota, an economic system used in Canadian agriculture * Milk quota, a quota on milk production in Europe * Indi ...

. Above that a single duty of 20 percent was fixed for all importations. This resulted in the local

production Production may refer to: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products (goods and services) * Production as a stati ...

of goods and services coming under enormous pressure and eventually most of it succumbed. * In order not to place the Bolivian economy under unnecessary pressure the payment of the

foreign debt A country's gross external debt (or foreign debt) is the liabilities that are owed to nonresidents by residents. The debtors can be governments, corporations or citizens. External debt may be denominated in domestic or foreign currency. It incl ...

was stopped for a few years. This agreement between Bolivia and the IMF was done under the strict condition that the complete

economic reform Microeconomic reform (or often just economic reform) comprises policies directed to achieve improvements in economic efficiency, either by eliminating or reducing distortions in individual sectors of the economy or by reforming economy-wide polici ...

s, as drawn by Jeffrey Sachs would be implemented faithfully.

Impact on the economy

In the short term, the decree smothered hyperinflation. Within a few months, inflation had dropped from peaks of 20,000 to between 10–20 percent. When Jeffrey Sachs left the country in 1987 it had fallen to 11 percent.

References

{{reflist, refs= {{cite journal, last1=Malloy, first1=James, title=Democracy, economic crisis and the problem of governance: The case of Bolivia, journal=Studies in Comparative International Development, date=Summer 1991, volume=26, issue=2, pages=37–39, doi=10.1007/BF02717867 {{cite web, title=Commanding the Heights - Jeffrey Sachs Comes to Bolivia, url=https://www.pbs.org/wgbh/commandingheights/shared/minitextlo/int_gonzalodelozada.html#6, publisher=PBS, accessdate=7 January 2015

External links

Shock Therapy: Bolivia, Poland, Russia - Gonzalo Sanchez de Lozada (PBS)

Law of Bolivia Economy of Bolivia Economic liberalization Decrees

Measures implemented

Impact on the economy

See also

References

External links