The National Revolution of 1952 and its impacts on the Central Bank of Bolivia

Abstract

Gesualdo A. Constanzo, probably was not exaggerating when he wrote that the monetary experience of the Bolivian national revolution was “one of the most fascinating chapters of economic history in modern times”. An account of the monetary and fiscal history of the revolutionary period suggests that it is not enough for the authorities to know what the most advisable policies to achieve economic stability are, nor that they have the firm purpose to adopt such policies; history insinuates that stability can only be achieved if the government is backed up by enough political, social and financial support to implement the appropriate measures. The dilemma between monetary stability and economic growth −one of the most polemic topics about Latin American development− conditioned the monetary and fiscal policies applied in those years and determined the institutional changes which were operated at the Central Bank of Bolivia [Banco Central de Bolivia (BCB)]. This essay, which is divided into four parts, starts with a discussion of the Law of reorganization of the Central Bank promulgated on December 20 of 1945, which was designed as a legal framework for fiscal austerity and restrictive credit policies undertaken by the government of Gualberto Villarroel in January of 1944. This background is crucial to understand the attitudes of key political actors and of the most important economic authorities in the decade of the 1950’s. In the second part, it is shown that the stabilizing intentions manifested by the economic authorities after the triumph of 1952, as well as the attempt to re-establish institutional independence of the Central Bank, had to be abandoned in view of the impetus of the revolutionary agenda imposed by popular pressure. Financing of the growing fiscal deficit with inorganic issue of money, allied to a commotion of the productive system caused by reforms, generated a formidable inflationary outbreak which could not be restrained by the stabilizing attempts of May 1953 and July 1956. In the third part, the internal circumstances and the external forces that determined the establishment of the National Council of Monetary Stabilization [Consejo Nacional de Estabilizacion Monetaria -