The Political Economy of Agricultural Credit: The Case of Bolivi

A theoretical framework is established to show that agricultural credit programs in less developed countries can be used for political purposes because of ( a ) government‐controlled supply; ( b ) implicit income transfers associated with concessionary interest rates, delinquency, and inflation that can be used as patronage for politically influential borrowers; and ( c ) ease of implementation under guise of economic objectives. The framework is applied to Bolivia. Within that country's political context, large income transfers to a few influential farmers strongly suggest the importance of political factors in credit allocation with consequent effects on income distribution, development, and debilitation of financial institutions.