LA PAZ, BOLIVIA, JULY 23 -- The International Monetary Fund has signed a letter of intent to lend Bolivia $173.3 million over the next three years.
Chile is the only other nation that has obtained a three-year loan agreement from the IMF.
Bolivian President Victor Paz Estenssoro, who took office in August 1985, has applied the free market and monetarist economic prescription the IMF advocates for debt-laden and moribund economies such as Bolivia's.
By decontrolling interest rates and the exchange rate while controlling the money supply and sharply reducing government spending, Paz has slashed inflation from 24,000 percent to less than 10 percent.
He has cut the federal budget deficit from 30 percent of the gross domestic product (GDP) to 3.5 percent and has raised tax revenue from 1 percent of GDP to 14 percent.
The IMF said Bolivia's economy would grow by 2.2 percent in 1987, marking the first growth in seven years.
"Bolivia's government has created economic stability, something the country hasn't had for 40 years," said a western diplomat. "In the IMF's eyes, Bolivia is one of the good boys in South America, especially compared to Argentina and Brazil."
In contrast to Bolivia, economically troubled Argentina and Brazil have fixed exchange rates and frozen wages and prices.
Finance Minister Juan Cariaga said in an interview that the IMF agreement, by signifying the fund's support for Bolivia's economic policies, would ensure normal disbursement of the $1.3 billion that foreign governments and multilateral institutions have promised to lend Bolivia over the next three years.
He added that the IMF accord, which the fund's board still needs to approve, would also allow the country to reach a three-year agreement on its debt with foreign governments.
Bolivia owes foreign governments $1.6 billion in principal debt, and its one-year agreement with them expires Aug. 30.
Overall, the country owes foreign creditors $3.3 billion.
Cariaga said he didn't expect the IMF agreement to bring new money from private foreign banks.
Bolivia and its private bank creditors signed an agreement a week ago under which the country will be allowed to buy back as much as $660 million -- the total amount of principal it owes commercial banks -- at a steep discount. The agreement does not include Bolivia buying back the $200 to $300 million in interest it owes banks.
Cariaga declined to say how much Bolivia will offer for the debt, but analysts here said they expect the rate to be between 10 and 15 cents per dollar, the current market price.
Under the agreement, Bolivia will purchase the debt with money donated by foreign governments to a special fund that the IMF will administer.