Capitalization, regulation and the poor: access to basic services in Bolivia

Abstract

Bolivia’s mid-1990s utility reforms combined an unusual privatization mechanism—capitalization, which traded management control for mandatory investment—with a new, economy-wide regulatory framework. This paper documents how capitalization and regulation reshaped the electricity, telecommunications, hydrocarbons, and water/sewerage sectors, and evaluates the reforms’ distributional implications for lower-income households along two dimensions: (i) access (network connection) and (ii) affordability (prices, expenditures, and approximate welfare changes). Empirically, the analysis relies primarily on Bolivian household surveys from 1989, 1994, and 1999, comparing pre-reform and post-reform periods and decomposing outcomes by urban income quintiles. The evidence is complemented by sectoral tariffs and institutional information. Consistent with the reforms’ macroeconomic objective, capitalization succeeded in attracting large foreign investment commitments, and the urban data indicate substantial increases in connection rates—especially for telephony, water, and sewerage—during the post-1994 period. Within major cities, expansions in connections generally did not bypass poorer households and, in several services, they appear to have disproportionately benefited lower-income quintiles. At the national level, however, gains are less progressive because rural coverage remained very low and reforms were rarely designed to transform rural provision. On affordability, available evidence suggests some adverse price and welfare effects, though conclusions are constrained by survey limitations (notably missing physical consumption) and by the need to approximate welfare changes from observed expenditures and tariff schedules. Overall, the results point to a trade-off: modest and hard-to-measure pricing impacts versus clearer, welfare-relevant access expansions in urban Bolivia.