Bolivian Capitalization and Privatization: Approximation to an Evaluation

This chapter provides an evidence-based, but necessarily partial, evaluation of Bolivia's 1990s privatization wave, focusing on the country's distinctive capitalization mechanism and the regulatory framework introduced as its complement. It first describes the design of capitalization-where control and 50% of equity in major infrastructure firms was transferred to strategic investors, while roughly 45-50% of shares were assigned to the population through pension-fund mechanisms-and documents the accompanying restructuring of industrial organization and regulation across electricity, hydrocarbons (oil and gas), telecommunications, transportation, and water/sewerage. The chapter then assesses outcomes along two dimensions. On the economic side, it reviews investment, productivity, profitability, and fiscal transfers, concluding that reforms broadly met their core goal of raising investment and-together with regulation-were associated with sizable increases in capacity and output. On the social side, it evaluates labor effects and consumer welfare (access, prices, quality), finding that employment reductions were modest relative to the overall economy and that-especially in urban areas-expanded access to utilities frequently benefited poorer households. While pricing evidence is incomplete, welfare calculations suggest that, except for the Cochabamba water episode, access gains generally outweighed price increases. Finally, it discusses why reforms remained unpopular, emphasizing the macroeconomic slowdown, perceived weaknesses in governance and regulation, oversold expectations, and high-profile failures.