The Shock Doctrine

Víctor Paz: Decreto es coyuntural, pero puede durar

Susan Velasco Portillo, La Prensa (La Paz), August 28, 2005.
Translated by Shana Yael Shubs

On August 10, 1985, four days after Paz Estenssoro swore in Congress to respect the political constitution of the State and the laws of the Republic, he decided to organize a group of experts to design the new economic policy of the country.

Those chosen were the president of Congress, Gonzalo Sanchez de Lozada, and the Ministers of Planning, Guillermo Bedregal, of the Treasury, Roberto Gisbert, and the economists Fernando Romero and Juan Cariaga. The latter two invited the leader of Udape and UDP member Fernando Prado in order to learn of the previous government’s projects, so as not to repeat the errors that had caused hyperinflation. The group of six was thus consolidated.

Later, experts in tax and financial matters and lawyers joined the team, such as Antonio Sanchez de Lozada, “Cacho” Muñoz, Eduardo Quintanilla, Juan Cristóbal Urioste and Raul España. According to the members of the group of six, Harvard professor Jeffrey Sachs, who was invited by ADN party member Ronald MacLean, did not participate right from the start but was working closely with the government.

The group of six experts had a big job ahead of them. And so, beginning on August 10 they met for 17 days at 9am in Sanchez de Lozada’s house, on Calle 7 in the Obrajes neighbourhood.

"We holed ourselves up there in a cautious and almost clandestine way," recalls Bedregal. No one outside the group knew about the plan, except for President Paz Estenssoro, who visited them every Friday at tea time. Eventually it became a daily visit. “He would question us about our work and how it was coming along," Bedregal adds.

According to Prado, the President did not discuss the plan with any other Ministers so that information would not be leaked to the media. However, the vice president of the Republic, Julio Garrett, and the leader of the ADN [Banzer's political party] Mario Mercado Vaca Guzman, were invited. The meetings took place in the main parlour, which despite its comforts was dim and cold, so that on many occasions they had to use a heater.

Cariaga was in charge of developing the economic models for the National General Budget, while the rest worked on other plans. They entered their data on an old computer. Prado was among those who trembled when the discussion turned to plans to relocate workers, close businesses and mines, and increase taxes.

"They are going to kill us," he said.

And Bedregal replied, "We have to be like the pilot of Hiroshima. When he dropped the atomic bomb he didn't know what he was doing, but when he saw the smoke he said: ‘Oops, sorry!’ And that’s exactly what we have to do, launch the measures and then: Oops, sorry!"

"Let's hope it’s possible, I responded," he [Cariaga] recounts.

To lighten up the tenser moments, Gonzalo Sanchez de Lozada would tell jokes in Spanish with his American accent.

When the document was almost finished, Prado recalls that the committee of six went to visit the head of the IMF mission in Bolivia, Hans Flinckeshinld. "This is what every official at the IMF has dreamed about. But if it doesn't work, luckily I have diplomatic immunity and I can catch a plane and flee," said Flinckeshinld, after learning of the content of the decree. There was some laughter from those present.

At the end of the conversation, Prado says that the official declared his support. However, Bedregal remembers that the IMF never backed DS 21060.

At 3:00pm on August 26, Prado, being the youngest of the six, was asked to make copies of the document. It was 60 pages long. The copies were given to the then minister Bedregal, who at the request of the President took 5 copies, for Paz Estenssoro, Sanchez de Lozada, Minister Quisbert and the heads of the Armed Forces and National Police.

Cabinet of Discord

At about 8:00am on August 27, when the sun of that clear day was just beginning to shine on the walls of the buildings of La Paz, the ministers began to arrive one by one at the Government Palace.

The chancellor Gaston Araoz, the Ministers of Government, Fernando Barelemy; of Defense, Luis Fernando Valle; of Education, Enrique Ipina Melgar; of Health, Hugo Rodriguez; of Peasant Affairs, Mauricio Mamani; of Labour, Walter Costas; of Industry and Commerce, Douglas Ascarrunz; of Transportation, Nestor Vares; of Energy and Hydrocarbons, Orlando Donoso; Antonio Tobar; of mines, Sinforoso Cabrera; of Information, Reynaldo Peters; of Aeronautics, Antonio Tobar; of Integration, Fernando Caceres. And of course the authors of the decree: Gisbert and Bedregal.

The meeting started right on time, with the presence of the president of Congress, Sanchez de Lozada, and the heads of the armed forces and the police.

Once everyone was inside, the President beckoned his aide with his right hand. He asked him to close the doors to the room and instructed the secretaries to hold all of the ministers’ telephone calls.

The Minister of the Presidency, Guillermo Riveros Tejada, distributed the copies of the supreme decree right away, and then chaired the meeting.

Bedregal read the document that he had drawn up. He recalls that he was so nervous he even got a nosebleed only minutes later.

The reading of the document created an atmosphere of bewilderment, followed by a controversial debate. There were various disagreements. The most forceful was from the Minister of Industry, Douglas Ascarrunz. "I don't agree."

"Please, leave," replied Paz.

"Okay, I’ll stay."

And so went the discussion. However, another version of events has Paz Estenssoro advising his entire cabinet that if anyone disagreed, they could leave immediately and resign. No one left. An almost sepulchral silence took hold of the cabinet meeting room. "The document was circulated and you could have heard a pin drop. You could hear the sound of the pen on the paper, and after 32 hours the decree was finally signed," says Bedregal.

The Director of Information, Jacobo Libermann, suggested they announce the measure in a presidential message to the nation. The announcement was made on August 29, 1985.
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