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Bolivia and the IMF

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Finance & Development
A quarterly magazine of the IMF
June 2002, Volume 39, Number 2

Crafting Bolivia's PRSP: 5 Points of View
Ramiro Cavero Uriona, Juan Carlos Requena P., Juan Carlos N��ez, Rosalind Eyben, and Wayne Lewis

Bolivia's poverty reduction strategy paper (PRSP), known in Spanish as La Estrategia Boliviana de Reducci�n de la Pobreza, was issued in March 2001. Building on an earlier national dialogue that began with the new government in 1997, it formulates a four-pronged plan for sustainable growth, social development, institutional strengthening, and eradication of drug (coca) production and trade.

Soon after the World Bank and the IMF launched the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in September 1999, Bolivia drafted an interim PRSP in preparation for the forthcoming dialogue, but it was seen as lacking clear priorities, and its preparation was not considered participatory enough. A new national dialogue was launched in April 2000 to promote participation in the preparation of the PRSP. Before the national dialogue began, civil society groups—including the Jubilee 2000 Forum of Non-governmental Organizations and groups representing small producers, indigenous peoples, and miners—prepared their own dialogues.

The national dialogue itself was designed as a bottom-up effort, with discussions taking place first at the municipal level, then at the regional level, and last, at the national level. The discussions covered four topics: the causes of poverty; mechanisms for the allocation of HIPC resources; citizens' participation in monitoring the use of HIPC debt relief resources; and follow-up and periodic renewal of the national dialogue. The conclusions guided the government in its drafting of the full PRSP. After a draft was approved by the Bolivian cabinet in February 2001, the paper was discussed with the public and revised in a few areas—particularly those dealing with indigenous, gender, and environmental issues—based on public feedback.

To learn more about Bolivia's PRSP, Finance & Development asked five people who were heavily involved in its preparation for their views on what worked and what didn't.

Ramiro Cavero Uriona
Minister of Sustainable Development and Planning, Bolivia

The dialogue process was very successful in that it allowed communities to participate and explain their problems, needs, and priorities. One shortcoming was that organizations representing certain groups—such as homesteaders, peasants, and indigenous peoples—did not fully attend and were represented by local authorities.

Participants in the dialogue process reached agreement on a number of issues, as follows:

  •  Greater decentralization would be necessary. This requires giving more responsibility to municipalities and local communities. The resources deposited in the municipalities' accounts are now unrestricted (within a range of possibilities, or a "menu" of options), allowing communities themselves to decide on the allocation of resources.
  • As Bolivia's most reliable institution, the Catholic Church should take the lead by organizing civil society to exercise social control.
  • Talking, persuading stakeholders, and working together are necessary for formulating and implementing social policies; thus, the national dialogue process should be institutionalized.

These agreements served as the starting point for the preparation of the PRSP. However, the poverty reduction strategy—like any other strategy—could not be prepared by a very large group of people with highly dissimilar needs. Consequently, although the PRSP was based on a consultative process and was widely disseminated, its actual preparation was entrusted to government professionals.

The review process was formalized in its entirety in the new national dialogue law, whose implementation began quickly with the establishment of regulatory standards and the adoption of concrete actions. The dialogue law follows four basic principles:

  • Attracting more resources from both debt relief and reform of the Investment and Development Funds, to facilitate the receipt of resources from international cooperation agencies.
  • Distributing resources more effectively. For the first time, poverty indicators are being taken into account in the allocation of resources, resulting in greater equity and transparency.
  • Using resources better. The decision-making process is decentralized. The communities themselves decide what to do with the resources.
  • Giving civil society more control over resources through the new social control mechanism and the strengthened municipal framework.
The biggest challenge now is to build local capacity to maximize the social welfare of communities through the effective use of these new resources.

The targets of Bolivia's PRSP
Bolivia's PRSP establishes targets for the medium and long terms (2005, 2010, and 2015). By 2015, the plan envisages achieving the following social goals:
  • reduction in the incidence of poverty from 63 percent to 41 percent;
  • reduction by half of the incidence of extreme poverty, from 36 percent to 17 percent;
  • increase in life expectancy from 62 to 69 years;
  • reduction in infant mortality from 67 to 40 per 1,000 births;
  • reduction in maternal mortality from 390 to 200 per 100,000 births; and
  • significant increases in school attendance and completion rates.

Success in reaching these targets will depend on Bolivia's achieving faster GDP growth. The PRSP calls for GDP growth of 5 percent in 2003 and 51/2 percent in 2008, compared with an average annual growth rate of 4 percent in the 1990s. Faster growth will require structural reforms that enable the country to boost private investment. Among the prerequisites for investment are the following:

  • a stable legal and judicial system;
  • more flexible labor markets;
  • greater emphasis on pro-poor growth through the removal of obstacles to the development of small-scale agriculture; and
  • macroeconomic stability (sustainable fiscal and external positions and low inflation).

The strategy, which addresses the key policy, incentive, and institutional constraints to poverty reduction, has four main components:

  • expanding opportunities for employment and income, particularly for small agricultural producers and microenterprises, partly by improving rural roads and other infrastructure;
  • developing human capital by giving individuals greater access to high-quality primary education and preventive health care;
  • increasing social protection for the poor; and
  • promoting social participation and integration.

The cost of implementation is estimated to be $7.4 billion from 2001 to 2006, of which $3.7 billion would come from domestic sources, and $2.8 billion from foreign financing. The financing gap of $0.9 billion could be filled by the private sector (for example, through investments in road concessions) or increased tax revenues following improvements in tax administration. Total public investment would rise from about 7 percent of GDP at present to 8 percent by 2006.

Juan Carlos Requena P.
Lead coordinator of the Bolivian poverty reduction strategy

In many ways, Bolivia's PRSP represented a departure from the country's past experience in formulating development strategies. It incorporated a broader base of participation that included civil society in a national dialogue whose conclusions on how resources should be used were included in the document and subsequently embodied in legislation. It also called for full public sector participation in the preparation and drafting of the strategy, and more extensive and better coordination with international cooperation agencies.

The participation of civil society proved to be very useful and valuable in providing a picture of the country's economic, political, and social circumstances (from the bottom up)—aspects that are not always properly weighed by those who prepare development strategies. However, it became clear that concrete rules had to be established to guide participants' interactions. Increased participation by civil society also generated expectations among those invited to participate because they assumed that they would have both a voice and a vote in defining the country's social and economic future. If these expectations are not met, the public could become frustrated and highly skeptical of this type of consultation.

Moreover, in some cases, a number of civil society representatives used this forum to voice their own specific demands. In other cases, it was felt that the first thing to do was to discuss the most appropriate economic and social model for the country. The next step, after a consensus had been reached on the right policies for the next 10�15 years, was to decide how to prioritize and allocate resources.

Further complicating matters, there were different views on the appropriate level of participation by civil society. Some international cooperation agencies expected that civil society would participate fully and actively throughout the process (including in the drafting of the strategy itself), while the government assumed that it would take the results of the dialogue and then proceed with the drafting of a document for discussion.

The fact that the strategy was expected ultimately to define the use of HIPC resources was a major factor in its formulation and probably the main reason for civil society's interest. The big question is whether civil society and the government will maintain this level of interest during implementation and revision of the strategy in 2003. This question is especially pertinent considering that the initial perception of some sectors of civil society and even the government was that the strategy was merely a formal requirement for gaining access to HIPC resources.

Juan Carlos N��ez
Deputy Secretary of the Episcopal Pastoral Social Commission C�ritas, Bolivia

The HIPC Initiative provided a window of opportunity for dialogue and debate by civil society, in which the main actors—the very poor—could make themselves heard and make proposals regarding the preparation of the PRSP. This will help deepen democracy and promote a culture of debate, in which the actors involved, especially those belonging to marginalized sectors, can participate in government policy- and decision-making, and thus help achieve greater social equity.

No doubt the greatest achievement of the entire process was the establishment of a social control mechanism and its acknowledgment by the dialogue law. This will ensure that the decision-making process is based on full participation, that the agreements are complied with, that corruption is controlled, and, above all, that government resources are used efficiently for the good of the most impoverished sectors.

Of all the initiatives that involved the consultation of civil society, one deserves special mention: the Jubilee 2000 Forum (an initiative promoted by the Catholic Church). Unlike the other initiatives, it was not sectoral; quite the opposite, it brought together more than 1,000 representatives of organizations and institutions from diverse sectors of Bolivian civil society.

That said, there were a number of shortcomings in the national dialogue process:

  • It was based on three agendas: social, economic, and political. The poor were able to participate to some degree in the social agenda, but not in the other two, even though a real struggle against poverty must include certain changes in the political and economic structures.
  • The methodology of the dialogue was controlled and closed, and did not allow for macroeconomic issues to be addressed.
  • The players invited—especially in the municipal roundtables—were not the very poor; in fact, they belonged to the political system.
  • The main political leadership did not attend and the announced political summit was not held. With a change of government in mid-2002, there is some danger that priorities will change and that many commitments will be revised.
  • Priority continues to be given to the relationship between economic growth and poverty, but no consideration is being given to income redistribution. In fact, poverty alleviation is not considered an immediate priority, except via secondary trickle-down effects.
  • The PRSP provides a general framework for reducing poverty, but does not push for action at the local government level.

Finally, one latent peril when it comes to implementation is that poverty will not be reduced by the targeted amount. The main reasons for this failure would be an excessively optimistic macroeconomic framework, especially the growth targets, and the fact that the contributions of all participants were not incorporated.

Rosalind Eyben
United Kingdom's Department for International Development, Bolivia

We helped establish a network of bilateral donors in Bolivia to support the PRSP process and identified three key issues: the participatory process (how to include the voices of poor people); the definition of poverty reduction (beyond human capital investment); and the scope of the PRSP (beyond spending the debt relief).

The outcome of the participatory process was mixed. The national dialogue successfully incorporated local government leadership as well as many strong civil society groups. However, including poor people—particularly women and indigenous peoples—proved more difficult. We were disappointed that the dialogue did not draw on the rich participatory methodological experience available in Bolivia. We hope that the next national dialogue (2003), whose purpose will be to monitor progress in the implementation of the poverty reduction strategy, will invest time and effort to ensure the inclusion of poor people. We also hope it will be a better dialogue, with the government providing the necessary information to allow citizens to engage more effectively in the policy process.

Before the PRSP, successive Bolivian governments had followed a twin-track policy of economic growth and investment in human capital. Along with parts of Bolivian civil society, we sought to persuade the government and the international financial institutions of the importance of a poverty reduction strategy that embraced the concept of pro-poor growth. We argued that the traditional twin-track policy addressed neither the political and economic causes nor the characteristics and consequences of poverty. The final version of the PRSP reflects this new integrated approach, but the associated policies remain largely unidentified.

The PRSP is meant to cover the entire public expenditure framework. However, we have yet to see the national budget reorganized around poverty reduction. For most Bolivians, the process was about how to spend the debt relief. In this limited sense, it was a success and good decisions were made. But the international community may well have been unrealistic in its expectations. Building political consensus for poverty reduction and implementing effective strategies take time and are messy. PRSP guidance from our head offices is far too ambitious. We should be more pragmatic, looking for incremental rather than radical changes. If we are less ambitious there is more chance of a sustainable outcome.

We believe the PRSP process in Bolivia did contribute to a shift in the balance of power toward poor people. It strengthened the room for maneuver of those in government, civil society, and the international community who are tackling the country's deeply entrenched problems of exclusion, corruption, and lack of accountability. However, the national dialogue failed to involve party political leaders. It is unlikely that, following this year's elections, the new administration will sign off on the PRSP in its entirety. This does not matter. What is important will be a sustained commitment to building an accountable public sector that is responsive to all citizens, not just to the rich and powerful.

Wayne Lewis
IMF Mission Chief to Bolivia

Bolivia's PRSP was an enormous undertaking. A joint assessment by the IMF and the World Bank found a number of strengths: a sound poverty diagnosis, the integration of poverty reduction measures in a consistent macroeconomic framework, and a major effort to broaden participation by including municipalities in the national dialogue. The IMF and the Bank also identified several problems that could hinder implementation: weak institutions, inadequate governance, and corruption; the economy's vulnerability to external shocks; limited acceptance of the PRSP; and possible delays with institutional reforms.

Although Bolivia's PRSP compares favorably with other PRSPs, there is room for improvement in the next round, perhaps along the following lines:

  • The PRSP set a new standard for consulting with the Bolivian public on government policy throughout the country. The national dialogue started with municipal roundtables followed by regional and national roundtables. Although participation was extensive, with over 1,200 people at the municipal level taking part, some groups were not represented because of the politics behind the selection process. The next dialogue should include vulnerable groups that were underrepresented in the first dialogue, particularly women and indigenous peoples.
  • Looking ahead to the change of government in August, it will be important to broaden ownership of the PRSP. The new administration may be reluctant to accept the poverty reduction strategy because opposition political parties consider that their views were not taken into account in the elaboration of the PRSP, even though they participated in the national dialogue. Moreover, the macroeconomic framework for the PRSP will have to be revised to take account of weaker-than-expected economic activity in 2001�02 and the country's less favorable fiscal position. However, it is too soon to know whether the basic framework—that is, the poverty diagnosis and the primacy given to growth and poverty reduction—will be accepted.
  • Before the PRSP was published, it was explained to the public. However, wider dissemination of this information might have helped increase people's understanding of—and perhaps their support for—the PRSP. A draft of the document was discussed in public forums and workshops and was then revised to expand on indigenous, gender, and environmental issues, but misunderstandings about the intended scope of the PRSP persisted. Some thought it should focus on how HIPC resources should be spent, while others thought it should focus more broadly on the entire antipoverty strategy.
  • Widespread concern about corruption weakening public institutions and undermining poverty reduction programs surfaced during the national dialogue. This concern is reflected in the PRSP, which includes a clear and candid analysis of the problem of corruption, and may have played a supportive role in the government's efforts to improve governance and fight corruption.