Bolivia Inching Away From a Past of Misery : Latin America: Inflation is under control. The economy is growing. And old enemies join hands to face a future of hope and democracy.

Historically, this has been South America’s poorest, most unstable nation, a disheartening example of economic and political underdevelopment. But now, despite its longstanding handicaps, Bolivia has cause for encouragement.

After at least 150 coups in the first 150 years of Bolivian national history, there haven’t been any since 1981. Old political enemies are working together in democracy.

For instance, retired Gen. Hugo Banzer Suarez, who ruled the country for most of the 1970s as a rightist dictator, is making his fourth try for election as the country’s constitutional president. His running mate is Oscar Zamora, a Marxist guerrilla leader when Banzer was dictator.

In 1985, Bolivia’s hyper-inflation reached one of the highest annualized rates in world history, 24,000%. Inflation now is under control, at about 10% a year. And the national economy, being revamped along free-market lines, has grown at an annual average of more than 3% for the last six years.

The readjustments have been painful, and poverty persists. But there are signs that misery is receding. The infant mortality rate, a key economic and social indicator, is still high but has fallen to half its appalling levels of two decades ago, when 150 of every 1,000 babies died by their first birthday.

Bolivia’s progress is part of a regional trend. Economies are shaping up and democratic institutions are taking root in many other Latin American countries. Chile and Argentina, better-off Bolivian neighbors previously ruled by generals, are among the most successful reformers.

But because its plight once seemed so discouraging, Bolivia’s progress is exceptionally gratifying. If not yet a showcase of democracy and development, this is a notable example of how a historically backward country can rise above its past.

Ideological changes in the outside world undoubtedly have helped Bolivia and other Latin American countries to leave disruptive political conflicts and unproductive economic policies behind. With the decline and fall of international communism, most Bolivians have accepted democracy and the free market as their country’s best hopes. Right and left have come to terms.

Banzer, after an unsuccessful run for the presidency in 1989, threw his support to left-leaning Jaime Paz Zamora in a runoff vote in Congress. In return, President Paz has governed with Banzer’s market-oriented economic policies and is supporting Banzer for this year’s elections, scheduled for June 6.

Paz’s Revolutionary Left Movement proposed Oscar Zamora, a former guerrilla, relative of the president and his former labor minister, as Banzer’s running mate. Banzer accepted.

“He is a realistic man who realizes that the world evolves; he realizes what has happened with communism,” Banzer, 66, said of Zamora. “He is in full agreement with the government program that we have elaborated. . . . One day I heard him say, ‘I am a Marxist-Leninist, but now I am a Banzerist.’ ”

Zamora was a guerrilla in bygone days “when it was believed that through violence the world would be transformed,” Banzer said. “Now it isn’t like that. It is through dialogue, through agreement.”

Banzer also emphasized in an interview that conditions no longer exist in Bolivia to justify a military coup like the one that brought him to power in 1971. Bolivia then was in turmoil under a leftist general trying to impose a revolution.

Military intervention is justified only “when there is no one who can assume political responsibility for the country and when there is chaos and anarchy in the magnitude that there was in 1971,” Banzer said.

Despite raging hyper-inflation in 1985 and agonizing economic austerity in succeeding years, the nation has steadfastly rejected its old coup-mania and stuck to the democratic track. Bargaining and ballots have replaced bullying and bullets in the Bolivian power game.

The 1989 deal in Congress between Banzer and Paz denied the presidency to candidate Gonzalo Sanchez de Lozada, even though he won a plurality in popular voting.

“If the United States had the Bolivian system, Ross Perot would be president,” said Sanchez de Lozada, a wealthy, American-educated mine owner and former planning minister who shares credit for conquering 1985’s hyper-inflation.

Sanchez de Lozada, 62, could finish first again in June’s popular voting, according to recent polls. But he acknowledged in an interview that it will be “practically impossible” for him to win the absolute majority needed to avoid a runoff in Congress.

He said his biggest problem is Max Fernandez, a populist candidate who has contributed millions of dollars to community improvements and gifts for poor voters. Fernandez, a self-made man who controls Bolivia’s biggest brewery, is likely to finish third, then throw his support to Banzer for the runoff in Congress, according to Sanchez de Lozada.

“Our strategy is to have a very big win so that the two of them can’t put together a majority in Congress,” he said.

Fernandez, 50, has often been accused of associating with drug traffickers and accumulating personal wealth by laundering drug money. Sanchez de Lozada said he has seen no proof of that.

But another populist candidate, Carlos Palenque Avilez, said his own Conscience of the Fatherland Party has turned up evidence that Fernandez’s brewery had business dealings with a major cocaine trafficker named Bismark Barrientos.

Palenque, a popular radio and television broadcaster, said in an interview that he would be interested in reaching an electoral agreement with either Banzer or Sanchez de Lozada, but not with Fernandez. “With him we are interested in absolutely nothing--no agreement, no talks, no contact--because he is a danger to the country,” said Palenque, 48.

Fernandez was unavailable for an interview but has repeatedly denied receiving any benefit from cocaine money. Despite the denials, American officials still have questions about his fortune and are waiting for answers before permitting him to travel to the United States, said Charles Richard Bowers, the U.S. ambassador to Bolivia.

The United States spent $140 million in Bolivia during the 1992 fiscal year as part of an ongoing program to fight cocaine trafficking. Bolivia produces more coca leaves, the raw material of cocaine, than any other country except neighboring Peru.

It isn’t easy to fight drug trafficking in a country with a weak economy, fragile political institutions and a mostly poor population of 7 million in a territory of rugged highlands and lowland forests that is nearly as big as California and Texas combined.

“Had we not helped our Bolivian friends and allies to fight the drug war when they did, there probably would not be a democracy today,” Bowers said. “The traffickers could have taken over, and I think the Bolivian government recognizes that.”

He said he expects clean elections and further progress. “That will set the stage for four more years of solidifying democratic institutions and market policies that make economic sense,” he said.

La Paz, the seat of government, is replete with contrasting symbols of the old and new Bolivias. Traffic jams clog narrow cobblestone streets, while Indian women in traditional bowler hats and full skirts sell tobacco, notions, even electronic gadgets from sidewalk stands in the shadows of new high-rise buildings.

In one steel-and-glass office building, economist Fernando Baptista listed some of the handicaps that make economic progress so hard for Bolivia. It is landlocked and isolated in the South American heartland. Inadequate transportation and communication networks limit private investment. Foreign aid has given Bolivia uncounted development studies but little development.

“We have the country with the most studies per capita in South America and we don’t advance,” Baptista said.

Bolivian workers who are underemployed or unemployed outnumber those with steady, full-time jobs, he said. An estimated 500,000 Bolivians are working in neighboring Argentina. Bolivia’s tin-mining industry, once the economy’s mainstay, collapsed in the 1980s when world tin prices plummeted. Recent growth in the economy is mainly in construction, financial services and retail trade, Baptista said.

He said Bolivia’s main hope for a new motor of development is oil and gas deposits in the eastern lowlands. Plans are being made for a gas pipeline to Brazil’s giant Sao Paulo industrial zone. “Obviously, it is one of the most important outlets for the economy of Bolivia,” Baptista said.

Planning Minister Samuel Doria Medina agreed in a separate interview that Bolivia’s hydrocarbon resources are important for the future but insisted that much progress has been made since the first half of the 1980s, when the country’s economy shrank by more than 20%.

The economy stabilized in the mid-1980s, then began growing at an annual rate between 2.6% and 4.1%. Last year’s rate was 3.4%.

“It isn’t enough, true,” Doria said. “We have to continue advancing. . . . If we want to make a jump in growth to double what we now have, to 7%, massive foreign investment is necessary.”

The hydrocarbons industry is expected to attract foreign capital, and mining for gold and other minerals is already bringing some in. Bolivia has begun a program of privatizing government-owned enterprises. But the selloffs have come slowly, partly because of bureaucratic foot-dragging.

Hugo Castellanos, a Bolivian businessman and lawyer who until recently was the president of the National Chamber of Industry, said the past two administrations have done much to set the stage for investment and productive economic growth, but more needs to be done. Bureaucratic corruption and red tape must be reduced, Castellanos said, and privatization must proceed.

“Political will exists on the government level,” he said. “There are good laws, and structural changes have been made. I think what we should try for in the next government administration is that this political will be respected by the bureaucracy.”