The backdrop to the rioting in La Paz this week is a bleak economic situation coupled with International Monetary Fund demands for government austerity that prompted leaders to propose income taxes on the middle class for the first time.
It was an explosive combination, sending the unmistakable message to Bolivian President Gonzalo Sánchez de Lozada about the difficulties of trying to please Bolivian workers and industrialists and Washington finance officials at the same time.
Faced with declining exports, low economic growth of 2 percent in 2002, a weakened banking system and high unemployment, the Bolivian government will post a budget deficit of 8.6 percent of its Gross Domestic Product, the widest measure of the country's production of goods and services. In comparison, the U.S. budget deficit was around 2 percent in 2002.
IMF negotiators have insisted that the Bolivian government lower the deficit by three percentage points to about 5.5 percent in order to reach an agreement and open the door to possible new loans.
The amount that must be trimmed can be attributed to the privatization of social security, a reform strongly backed by the IMF. The problem is that during the transition to an entirely private system, the government forfeits social security payments, which now go to private pension plans, but must pay pensions of retired workers who are in the old system.
Bolivia's president also needs $4 billion to fund a proposed Public Works and Employment plan to create jobs in an attempt to tackle the 12 percent unemployment rate and nearly 53 percent poverty rate. Sánchez de Lozada ruled out an increase in gasoline taxes or higher taxes on multinational oil companies.
Caught between demands to cut the deficit and high expectations among Bolivians to begin solving some of the country's social and economic problems, Sánchez de Lozada decided to tax the middle class at a rate of 12 percent.