Bolivian president Evo Morales celebrated his seventh year
in office in late January with a national address detailing the
changes in the country over the past 12 months and, more
broadly, since his inauguration in 2006.
It was not a short speech by any means. Morales spoke for
more than four hours, stressing Bolivias thriving economy
and plans to achieve developed-nation status by 2025.
Bolivias gross domestic product has more than doubled
to $26 billion in the past seven years. In 2012, gross domestic
product likely expanded by 5.2%, and inflation was 4.5%, down
from 6.9% the previous year, according to the Economic
Commission for Latin America and the Caribbean (Eclac). The
government forecasts GDP to grow by 5.5%, and inflation is
targeted at 4.5% this year. Official statistics from the
central bank have shown unemployment has dropped to 6% and
poverty in 2012 was 45%, and trending downward. It topped 60%
when Morales took office. Per capita income, while still the
lowest in South America, increased substantially between 2006
and 2012, compared to the previous seven-year period.
Exports are booming, coming in at $11.8 billion in 2012,
with a trade surplus of $3 billion. Export earnings are
expected to be strong again in 2013. International reserves
passed the $14 billion mark in January they are now much
higher than the countrys debt and there has been a
major shift in the financial system, which has rapidly
de-dollarized. Dollarization of the system peaked a decade ago,
in April 2003, when 94.5% of deposits were in US currency. It
has not been reversed completely, but it is close, with 80% of
loans and 72% of deposits now in bolivianos. This has meant a
massive monetary emission, jumping from 6 billion bolivianos in
circulation in 2005 to 30 billion in 2012, or from $868 million
to $4.34 billion at the current exchange rate.
In addition to this, in the final quarter of last year the
government issued the countrys first international bonds
in nearly a century. The $500 million placement was
oversubscribed nearly eight times, in a market where emerging
and frontier countries debt is being snapped up by
investors hungry for higher yields as western countries
bonds offer near-zero returns.
Central bank governor Marcelo Zabalaga tells Emerging
that the macroeconomic stability is not only
accepted as a given today, but it is changing the way
Bolivias 10.4 million people see the country.
It is possible today to talk about long-term plans,
which is something that did not happen before in Bolivia. It
was difficult to think about a plan lasting five years; now we
are looking 12 years into the future. This is due to sensible
policies since 2006 that are based on Bolivias
reality, he says.
Among the policies, some of which have been highly
controversial, are nationalization of strategic industries,
controls on specific exports and imports and a close
micro-management of the economy, including weekly meetings
between the central bank and Ministry of Economy and Public
Finances (MEF) to analyse and respond to current events.
Government changes to the mining and energy businesses,
including new contracts and royalty schemes for oil/gas
companies, have vastly increased the state revenues. Revenue
from oil/gas has increased ten-fold since 2006, going from
around $300 million annually to $300 million monthly. This is
due to a combination of factors, including more exports and
better prices for natural gas. Of the $11.8 billion in exports
last year, natural gas accounted for $5.4 billion.
The nationalizations, however, have raised eyebrows among
foreign investors and Bolivias private sector alike. The
National Chamber of Commerce reported in February that
nationalizations were keeping foreign investment away. The
Chamber said foreign investment in 2012 was close to $850
million, while public investment was $1.6 billion.
The country is rated below investment grade by Fitch, and
representatives of the rating agency say more stability is
needed before Bolivia can be upgraded.
The concerns are very much on the political risk under
President Morales, Shelly Shetty, head of Latin America
sovereigns at Fitch Ratings, told a recent seminar on the
outlook for South American economies in London. But
Bolivia has shown over the years that it is not going the way
Enrique Gómez, a former head of the natio-nal
electric company, ENDE, says nationalization may seem effective
today, but there appears to be no plan for the construction of
power plants or exploration to increase oil/gas reserves.
The state is receiving more revenue, but it is unclear if
it has any plans to ensure this revenue. The government is
talking about the same hydroelectric plants planned back in the
1990s. If they are going to nationalize, they need to have a
more coherent strategy, he says.
Roberto Laserna, head of a Bolivian economic think tank,
CERES, agrees that the country is doing well, but says that
growth has come despite, rather than due to, government
policies. Bolivia has never before experienced such
expansive and extensive growth like the one we are seeing right
now ... but this has happened because of an increase in price
for the raw materials we export. There is no direct
relationship between the governments actions and economic
growth, he says.
The government is constantly telling people about revenue
and investing in projects and programmes, but they never
talk about results from this investment, because there is so
little to show, Laserna adds.
Zabalaga not only refutes this, but says the government has
become much more proactive in making sure liquidity in the
economy works for Bolivians. The bank has made more than $1
billion in loans to state companies, primarily the state-run
oil company, YPFB, and ENDE. The Morales administration also
created the Fund for Investment for the Productive Revolution,
which earmarks around $1.2 billion to be loaned to productive
companies that have a majority state participation.
As head of the central bank, Zabalagas principal
concern is inflation. We have stability today, which is
something all central bankers want, but I still wake up every
morning thinking about inflation, he says.
The administration recognizes that inflation will be
slightly higher than in other countries in the region, because
Bolivia still needs to address historic demands higher
salaries, increased social spending or better infrastructure
needed to improve the standard of living, according to
We have internal issues to address. The minimum wage
in Bolivia is much lower than the minimum wage in the countries
around us, and we need to increase this little by little. There
are demands for improved quality of life that create a
permanent tension and make inflation a little higher, he
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