A Tale Of Two Cities: Bolivia

January 6, 2011

Bolivia, a landlocked country in the heart of the South America land mass, perhaps represents the popular image of old of Latin America best: it has struggled with political instability (and more coups than any other nation), conflict with its neighbors in which it has lost more than half its territory, a diverse multi-ethnic population, and economic difficulties best represented by mega inflation that hit 60,000% on an annualized basis in mid-1985. To put the inflation in context, we heard the anecdote that the rate for a taxi ride from the La Paz airport to the city center would double on the return trip. A friend once told us that he was in a restaurant in La Paz at the time and when it came time to pay a fellow diner took a stack of notes and a ruler and measured out the payment.

It is here that Butch Cassidy and the Sundance Kid met their end, Che Guevara perished at the hands of the CIA and the local police, and Klaus Barbie and other Nazis fled to after WWII. Many of the indigenous women wear bowler hats as part of their “traditional” costume, yet these hats were introduced to them from Britain by an enterprising company in the 1920s.

Bolivia itself is divided politically between its two largest cities, La Paz and Santa Cruz, and the contrast between these two could not be greater. Visitors to Latin America often remark on the differences between cities in the same country, such as Sao Paulo and Rio de Janeiro in Brazil, or Quito and Guayaquil in Ecuador, but La Paz and Santa Cruz are far more polarized and diverse, both geographically and culturally.

La Paz is the highest capital in the city in the world at around 3,800 m, approx. 1,000 m higher than the second highest, Quito, and visitors arriving at the airport in El Alto are often plagued by ferocious headaches. It is the seat of most of branches of government, ethnically has a highly indigenous population, a relatively cold climate in the oxygen starved altiplano, and economically has a large informal sector and on the whole light industry. There seems to be little dynamism and many parts of the city often appear to be mired in its colonial past.

In comparison, little visited Santa Cruz is a hot, dusty new-town, a melting pot of ethnic and cultural diversity and famed for the beauty of its women. It’s a brash, often chaotic city that is proud of its zestful nature and the wealth generated by its proximity to the gas fields; its inhabitants want everyone to know that they are independent of La Paz and often tell you that their town is now the largest and most important in Bolivia (which is technically true but La Paz and neighboring El Alto form a larger overall urban conurbation). Santa Cruz appears to want international trade to succeed, and perhaps with other cities such as Cochabamba seems to offer Bolivia a real hope for the future; international brands are everywhere and many of the businessmen ask foreign visitors why no one has heard about them.

On paper perhaps Bolivia does not appear to offer very much: a population of 10 m, one of the lowest GDP per capita in Latin America (approx. $4,700 on a PPP basis), and a populist president, Evo Morales, that appears to often get his cue from the economically incompetent president of Venezuela, Hugo Chavez. In addition there has been strife with the US over its willingness to tackle the drugs trade (not helped by the fact that President Morales was previously head of the coca farmers union), which has led to the removal of certain trade preferences, and the government has often mishandled political challenges (and its reputation is not helped by the botched attempt to cut fuel subsidies recently).

Nevertheless, despite the frequent political turmoil a surprisingly orthodox fiscal policy and strong commodity prices have allowed economic growth to continue, hitting around 6.1% in 2008, with forecast growth just below 4% p.a. for 2011 and the medium term; no China or India indeed, but comparable to that forecast for most of the rest of Latin America. We would also expect the middle class in more dynamic areas such as Santa Cruz to grow much faster than that, offering modest but real potential for an exporter willing to brave trade with this distant market.