BANKING ON THE PERIPHERY: Bolivia's Financial Reforms, 1985-1996

ABSTRACT This article examines the sequencing of financial reform in LDCs in Bolivia. Bolivia undertook a dramatic stabilization program in 1985 and, over the next decade, steadily improved the oversight and regulation of domestic banks. I explain how these reforms proceed under three democratically elected administrations who each used political pacts to ensure legislative support for their agenda. At the international level, external shocks twice precipitated deeper banking reforms, but Bolivia's underdeveloped capital markets prevented the speculative attacks observed in other cases. The Bolivian experience demonstrates the potential for financial reform in the poorest of LDCs and the need for further research in similar cases.