President Jaime Paz Zamora
Courtesy Embassy of Bolivia, Washington

In 1985 the entire nation was submerged in a state of tense anticipation as Paz Estenssoro unveiled his strategy to confront the economic and political crisis. Throughout August 1985, a team of economists worked to design the new government's economic initiatives. The private sector came to play a crucial role in the elaboration and implementation of the government's economic policy. The private sector's main organization, the CEPB, had shifted its traditional support for authoritarian military solutions and by 1985 had become clearly identified with freemarket models that called for reducing the state's role in the economy. When the economic reforms were announced, the impact on the private sector became evident.

On August 29, 1985, Paz Estenssoro signed Decree 21060, one of the most austere economic stabilization packages ever implemented in Latin America. Hailed as the NPE, the decree sought to address the structural weaknesses in the state capitalist development model that had been in place since 1952. Specifically, the decree aimed at ending Bolivia's record-setting hyperinflation and dismantling the large and inefficient state enterprises that had been created by the revolution. Hence, the NPE represented a shift from the longstanding primacy of the state in promoting development to a leading role by the private sector. The NPE also rejected the notion of compatibility between populist redistribution and capitalist development that had characterized previous MNR-led regimes.

After addressing the economic side, Paz Estenssoro moved to resolve the political dimensions of the crisis. In fact, shortly after the announcement of Decree 21060, the COB, as it had done so often under Siles Zuazo, headed a movement to resist the NPE. But the COB had been weakened by its struggles with Siles Zuazo. After allowing the COB to attempt a general strike, the government declared a state of siege and quickly suffocated the protest. Juan Lechín Oquendo and 174 other leaders were dispatched to a temporary exile in the Bolivian jungle. They were allowed to return within weeks. By then, the government had already delivered the COB a punishing blow that all but neutralized organized labor.

Even as he moved to contain the COB, Paz Estenssoro sought to overcome the potential impasse between the executive and legislature that had plagued Siles Zuazo for three years. The MNR did not have a majority in Congress, and therefore Paz Estenssoro had to contemplate a probable confrontation with the legislature for this reason, among others, he decreed the NPE. In moving to overcome this political gap, Paz Estenssoro did not seek support from the center-left groups that elected him. Indeed, any move in that direction would have precluded the launching of the NPE in the first place. Paz Estenssoro had in fact seized on parts of the program pushed by Banzer and the ADN during the electoral campaign. As a r 165e result, Banzer was left with the choice of backing Paz Estenssoro or opposing a stronger version of his own policy program.

Discussions opened by Paz Estenssoro with Banzer ripened into a formal political agreement, the Pact for Democracy (Pacto por la Democracia--pacto), signed on October 16, 1985. The formulation of the pacto was a crucial political development. Under its terms, Banzer and the ADN agreed to support the NPE, a new tax law, the budget, and repression of labor. In return, the ADN received control of a number of municipal governments and state corporations from which patronage could be used to consolidate its organizational base. The MNR also agreed to support reforms to the electoral law aimed at eliminating the leftist groups that voted against Banzer in Congress. Most important, the pacto allowed ADN to position itself strategically for the 1989 elections.

In the most immediate sense, the pacto was effective because it guaranteed the Paz Estenssoro government a political base for implementing the NPE. For the first time in years, the executive was able to control both houses of Congress. Paz Estenssoro used this control to sanction the state of siege and defeat all attempts of the left to censure the NPE. In broader historical terms, the pacto was significant because it created a mechanism to overcome the structural impasse between the executive and the legislature.

The pacto served other purposes as well for example, it gave Paz Estenssoro leverage over some of the more populist factions of the MNR who were unhappy with the NPE because they saw it as a political liability in future elections. For three years, Paz Estenssoro used the pacto to prevent any possible defections. Hence, party factions that could have harassed the president contemplated the immediate costs of being cut off from patronage even as they were forestalled in their larger political goal of altering the NPE.

As in Colombia and Venezuela, where pacts between the principal parties were responsible for the institutionalization of democracy, the pacto was deemed an important step toward consolidating a two-party system of governance. In contrast to the Colombian and Venezuelan cases, however, the pacto was based more on the actions of Banzer and Paz Estenssoro than on the will of their respective parties. Moreover, because the pacto was a reflection of patronage-based politics, its stability during electoral contests was tenuous at best. During the municipal elections in 1987, for example, party members, when confronted with patronage offers from opposition parties, faced enormous difficulties in adhering to it.

The campaign for the 1989 elections tested the pacto to the breaking point. At issue was the need to ensure that in the event neither candidate secured a majority, the losing party would support the victor in Congress. Polls conducted in December 1988 and January 1989 suggested that Banzer could emerge victorious. Under the terms of an addendum to the pacto signed in May 1988, the MNR would be obligated to support Banzer in Congress. This situation provoked a sense of despair in the MNR, which perceived itself as an extension of the ADN with no real likelihood of emerging victorious in May 1989.

In a surprising pre-electoral move, Banzer announced the formation of a "national unity wand convergence alliance" between the ADN and MIR. Congress deliberated fourteen hours on August 5 before electing Jaime Paz Zamora as president of Bolivia and Luis Ossio Sanjinés of the ADN Christian Democratic Party (Partido Demócrata Cristiano--PDC) alliance as vice president. On handing the presidential sash to his nephew, Paz Zamora, on August 6, Paz Estenssoro thereupon became the first president to complete a full term in office since his second presidency in 1960-64. The political maturity of the election was illustrated not only by Banzer's support for the MIR and the MIR's willingness to join with the ADN but also by the vows of both Banzer and Paz Zamora to continue with the policies of the NPE.

The "national unity and convergence alliance," however, revealed that old ways of doing politics had survived. Although the ADN and MIR each received nine ministries, the ADN controlled the principal policy-making bureaucracies, such as foreign affairs, defense, information, finance, mining and metallurgy, and agriculture and peasant affairs. The ADN's share of the cabinet posts went to many of the same individuals who had ruled with Banzer in the 1970s. The MIR's principal portfolios were energy and planning. Following a traditional spoils system based on patronage, the new ruling partners divided among themselves regional development corporations, prefectures, and decentralized government agencies, as well as foreign embassy and consular posts.

Data as of December 1989