Bolivia relies primarily on exports of tin and other minerals, as well as illegal contraband and cocaine trafficking. The domestic market is protected, with customs tariffs ranging from zero to 180 percent and volume and value quotas in place for many goods.
Trade policy shifts toward making the external sector more market-oriented and diversifying the export base. The government liberalizes import policies by introducing a uniform tariff of 20 percent. All export taxes are abolished. Constant devaluations through a floating exchange rate help lower prices of exports. The government establishes an export-promotion institute.
The export sector struggles in the face of depressed commodity prices. Exports of natural gas increase while those of tin decrease. Under the economic Reactivation Decree, the government fosters export activity by introducing tax rebates for exporters. A large portion of exports (those of cocaine and illegal smuggling) are not reported. The tariff for capital goods imports falls to 10 percent.
Trade is integrated into neighboring economies. Trade between Chile and Bolivia increases. The Peruvian Congress agrees to give Bolivia a free-trade zone in a Southern port. But Bolivia suffers from its dependence on Argentine payments, most of which are in arrears, for natural gas exports. A law grants rebates of all domestic taxes paid on the production of items later exported.
The government strives to make Bolivia the regional hub for exporting hydrocarbons. A pipeline to Brazil expands the export market for natural gas. Bolivia participates in several regional preferential-trade agreements. In 1997 Bolivia implements an association agreement with the Southern Cone Common Market (Mercosur). The United States remains Bolivia's largest trading partner.
The substantial elimination of the illicit coca trade removes an illegal but valuable source of foreign revenue; Bolivia complains that its legal exports are hindered by the failure of its trading partners to adopt free-trade reforms that match its own, as well as by the flow of contraband across its borders. The government pushes for fast trade integration in the Andean region and Southern Cone.
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