Bolivia's most lucrative crop and economic activity in the 1980s was coca, whose leaves were processed clandestinely into cocaine. The country was the second largest grower of coca in the world, supplying approximately 15 percent of the United States cocaine market in the late 1980s. Analysts believed that exports of coca paste or cocaine generated from US$600 million to US$1 billion annually in the 1980s, depending on prices and output. Based on these estimates, coca-related exports equaled or surpassed the country's legal exports.

Coca has been grown in Bolivia for centuries. The coca plant, a tea-like shrub, was cultivated mostly by small farmers in the Chapare and Yungas regions. About 65 percent of all Bolivian coca was grown in the Chapare region of Cochabamba Department other significant coca-growing areas consisted of the Yungas of La Paz Department and various areas of Santa Cruz and Tarija departments.

Bolivian farmers rushed to grow coca in the 1980s as its price climbed and the economy collapsed. Soaring unemployment also contributed to the boom. In addition, farmers turned to coca for its quick economic return, its light weight, its yield of four crops a year, and the abundance of United States dollars available in the trade, a valuable resource in a hyperinflated economy. The Bolivian government estimated that coca production had expanded from 1.63 million kilograms of leaves covering 4,100 hectares in 1977 to a minimum of 45 million kilograms over an area of at least 48,000 hectares in 1987. The number of growers expanded from 7,600 to at least 40,000 over the same period. Besides growers, the coca networks employed numerous Bolivians, including carriers (zepeadores), manufacturers of coca paste and cocaine, security personnel, and a wide range of more nefarious positions. The unparalleled revenues made the risk worthwhile for many.

Government efforts to eradicate the rampant expansion of coca cultivation in Bolivia began in 1983, when Bolivia committed itself to a five-year program to reduce coca production and created the Coca Eradication Directorate (Dirección de la Reconversión de la Coca--Direco) under the Ministry of Agriculture, Campesino Affairs, and Livestock Affairs. Bolivia's National Directorate for the Control of Dangerous Substances (Dirección Nacional para el Control de Substancias Peligrosas-- DNCSP) was able to eradicate several thousand hectares of coca. These efforts, however, put only a small dent in the coca industry and were highly controversial among thousands of peasants. Under the joint agreement signed by the United States and Bolivia in 1987, which created DNCSP, Bolivia allocated US$72.2 million for the 1988 to 1991 period to eradication programs, including a wide-ranging rural development program for the Chapare region. The program was aided by an 88 percent drop in the local price of coca caused by the fall in cocaine prices in the United States.

The economics of eradication were particularly frustrating. As more coca was destroyed, the local price increased, making it more attractive to other growers. Bolivia, however, was seeking additional855 al funds from the United States and Western Europe to proceed with an eradication plan that was supposed to provide peasants US$2,000 per hectare eradicated. In 1988 coca growing became technically illegal outside a specially mandated 12,000- hectare area in the Yungas. A four-year government eradication campaign begun in 1989 sought to convert 55 percent of coca areas into legal crops. Coffee and citrus fruits were offered as alternative crops to coca despite the fact that their return was a fraction of that of coca.

The cocaine industry had a generally deleterious effect on the Bolivian economy. The cocaine trade greatly accelerated the predominance of the United States dollar in the economy and the large black market for currency, thereby helping to fuel inflation in the 1980s. The escalation of coca cultivation also damaged the output of fruits and coffee, which were mostly destined for local consumption. Coca's high prices, besides being generally inflationary, also distorted other sectors, especially labor markets. Manufacturers in the Cochabamba area during the 1980s found it impossible to match the wages workers could gain in coca, making their supply of labor unreliable and thus hurting the formal economy.

Data as of December 1989