Famous since Spanish colonial days for its mineral wealth, modern Bolivia was once a part of the ancient Incan empire. After the Spaniards defeated the Incas in the 16th century, Bolivia's predominantly Indian population was reduced to slavery. The remoteness of the Andes helped protect the Bolivian Indians from the European diseases that decimated other South American Indians. But the existence of a large indigenous group forced to live under the thumb of their colonizers created a stratified society of haves and have-nots that continues to this day. Income inequality between the largely impoverished Indians who make up two-thirds of the country and the light-skinned, European elite remains vast.

By the end of the 17th century the mineral wealth had begun to dry up. The country won its independence in 1825 and was named after Simón Bolívar, the famous liberator. Hampered by internal strife, Bolivia lost great slices of territory to three neighboring nations. Several thousand square miles and its outlet to the Pacific were taken by Chile after the War of the Pacific (1879–1884). In 1903, a piece of Bolivia's Acre Province, rich in rubber, was ceded to Brazil. And in 1938, after losing the Chaco War of 1932–1935 to Paraguay, Bolivia gave up its claim to nearly 100,000 sq mi of the Gran Chaco. Political instability ensued.

In 1965, a guerrilla movement mounted from Cuba and headed by Maj. Ernesto (Ché) Guevara began a revolutionary war. With the aid of U.S. military advisers, the Bolivian army smashed the guerrilla movement, capturing and killing Guevara on Oct. 8, 1967. A string of military coups followed before the military returned the government to civilian rule in 1982, when Hernán Siles Zuazo became president. At that point, Bolivia was regularly shut down by work stoppages and had the lowest per capita income in South America.

In June 1993, free-market advocate Gonzalo Sánchez de Lozada was elected president. He was succeeded by former general Hugo Bánzer, an ex-dictator turned democrat who became president for the second time in Aug. 1997. Bánzer made significant progress in wiping out illicit coca production and drug trafficking, which pleased the United States. However, the eradication of coca, a major crop in Bolivia since Incan times, plunged many Bolivian farmers into abject poverty. Although Bolivia sits on South America's second-largest natural gas reserves as well as considerable oil, the country has remained one of the poorest on the continent.

In Aug. 2002, Gonzalo Sánchez de Lozada again became president, pledging to continue economic reforms and to create jobs. In October 2003 Sánchez resigned after months of rioting and strikes over a gas-exporting project that protesters believed would benefit foreign companies more than Bolivians. His vice president, Carlos Mesa, replaced him. Despite continued unrest, Mesa remained popular during his first two years as president. In a July 2004 referendum on the future of the country's significant natural gas reserves (the second largest in South America), Bolivians overwhelmingly supported Mesa's plan to exert more control over foreign gas companies. Mesa managed to satisfy the strong antiprivatization sentiment among Bolivians without shutting the door on some limited form of privatization in the future. But rising fuel prices in 2005 led to massive protests by tens of thousands of impoverished farmers and miners, and on June 6 Mesa resigned. Supreme court justice Eduardo Rodriguez took over as interim president.

Bolivian Indian activist Evo Morales of the Movement Toward Socialism (MAS) won 54% of the vote in Dec. 2005 presidential elections, becoming the country's first indigenous president. He carried out two of his three major initiatives in 2006: nationalizing Bolivia's energy industry, which is expected to double the country's annual revenues; and forming in August a constituent assembly to rewrite the constitution, which will ensure greater rights for indigenous Bolivians. His third major initiative is to legalize the growing of coca, which many Bolivians consider an integral part of their culture. In July 2007, Morales announced plans to nationalize the country's railways, which for the past 10 years have been run by investors from Chile and the United States. His controversial coca policy, his plans to limit foreign investment, and his close ties with the leftist governments of Venezuela and Cuba have predictably antagonized the United States. Morales has referred to himself as the “United States' biggest nightmare.”

On December 9, 2007, Morales presented a new constitution to congress. The new chapter, which will give indigenous people more rights, recognize 37 official languages, and grant indigenous communities autonomy, was approved by 164 of the 255 constituent assembly members. The opposition boycotted the meeting, however, claiming that the document is illegal because it was not approved by the required two-thirds majority. Regardless of the opposition, the government plans to submit the document to a referendum in 2008.

On May 4, 2008, at least one person died and many were injured when clashes broke out in the Santa Cruz province after a poll was held in opposition to President Morale's governement. The government strongly disapproved of the prosposed referendum, which would give more autonomy to the Santa Cruz province, including the ability to elect its own legislature, raise taxes for public works, and create its own police force.