Bolivia has had a turbulent history at times measured in bullets and blood as the current landscape includes a picture of increased social difficulties, a vast rise in violent crime and a government losing its authority to manage. As one of the poorest nations in the Western hemisphere where a majority of 60 percent of the population live in poverty, the boliviano has low global purchasing power as foreigners would find most goods very cheap. Although significant challenges lie ahead, there are many bright spots for Bolivia including the opportunity to expand on its growing tourism market along with its tremendous potential in the development of its abundant rich natural resources in minerals and energy.
POLITICS: President Gonzalo Sanchez de Lozada of the Nationalist Revolutionary Movement took power in August 2002 in a close election, he is a centrist and conservative businessman. President Lozada formed a coalition government with leftist leader Zamora, this clash of political ideology may help to keep his government divided politically. President Lozada is a former mining executive who has been granted a 5-year mandate to govern until year 2007. President Lozada is U.S. educated and has served as Bolivia's President previously from 1993 to 1997. The government must restore public confidence from the recent political conflict with protestors. A political price was dealt as President Lozada's Cabinet has since resigned from the poltical violence in February 2003 and have all since been replaced along with six ministries being dismantled. Bolivia has had a long history of political protests, a 'State of Emergency' have been common since 1982 when democracy returned to Bolivia after decades of military rule.
Political divisions are prevalent due to a large discrepancy in wealth distribution whereby non-native Bolivians earn an average $400 USD/year at market prices and natives are at $150 USD/year. The government remains committed to foreign direct investment (FDI), low inflation and low debt although the public feels that government spending is too high. The main political risk is public discouragement against free market reforms and a movement back towards protectionist policies. After 15 years of market reforms, the Bolivian economy to date has failed to lift the Indian majority from poverty as the European descendents rule the nation politically.
ECONOMY: deep economic recession over the last 4 years for this aid dependent economy. For the most part, the economy consists of a large agricultural component and an expanding energy sector. The Bolivian economy was liberalized in 1985 where economic and structural reforms were implemented thus stabilizing the economy and currency. The 1997-98 Asian financial crisis coupled with low commodity prices put a dent into Bolivia's growth. Then in early 1999, giant Brazil devalued their currency, the Brazilian real, this slowed Bolivia's economy even further. During the 1990's, Bolivia pursued foreign investment, reduced tariffs, opened the borders for movement of goods, successfully lowered inflation, privatized many state-run industries (national airline, railroad, Huanuni tin mine, etc.) which led to layoffs and tough times for many resulting in anti-globalization feelings. Many Bolivians feel that these policies have not worked to the benefit of Bolivia. At present, the role of government in the economy has fallen to 35 percent of GDP reflecting a more open free economy.
Strong foreign investment levels during the 1990's have offsetted the trade deficit into Bolivia's mining, oil, power generation and telecommunication industries. The economy is adjusting moving towards service jobs including tourism which is growing with year 2000 toursim valued at $100 million USD plus. More recently, the fiscal budget is showing a large deficit due to low economic growth, too high government spending and poor pension reforms. Difficult economic times have reflected in Bolivia's stagnant exports where they are at the same level back in 1975 at $1 billion USD/year.
Trade
Bolivia is an Associate member of of MERCOSUR (Southern Cone Common Market) and also has a signed free trade deal with Mexico. Major export markets include the United States, Colombia, United Kingdom and Brazil. United States economic aid at $150 million USD. President Lozada is seeking upwards of $4 billion USD in loans from international banks and IMF economic support although Bolivia is struggling to implement austerity programs as negotiated with the IMF.
Cocaine Trade
From 1999-2001 in Bolivia, the 1997 U.S. sponsored 'Dignity Plan' resulted in the eradication of 42,000 hectares of illicit coca cultivation which accordingly lowered Bolivia's GDP growth by 1 to 2 percent per year. Bolivia's cocaine production has fallen from 245 tonnes in 1995 to 40 tonnes in 2000. Will this figure go back higher again with cocaine production moving out of Colombia due to United States pressure? Most likely as U.S. sponsored 'Plan Colombia' shifts further coca production from Colombia into Peru and Bolivia. In the last 2 years, new planting has overtaken eradication. Protests and violence by thousands of farmers have culminated in the large political support for their leader, Evo Morales. This U.S. sponsored coca eradication program has cost Bolivia $500 million USD and has destroyed the livelihood of thousands of farmers reflecting in great discontent for the government.
Mining Industry
Zinc is its largest production followed by gold with year 2003 gold production estimated to climb to 36 tonnes. Bolivia also has great potential to exploit its silver production, expand its tantalum and gold & copper output replacing tin, its historical metal of income. Lower prices for zinc and tin have negatively impacted although rising gold bullion prices will help to offset this shortfall.
Economic Statistics
GDP as measured by purchasing power parity is at $21.4 billion USD (2001) and GDP/Capita is valued at $2,600 USD (2001). GDP at market prices are at $8 billion USD. GDP growth was strong throughout the 1990's averaging 3.7 percent of GDP due prudent fiscal & monetary policies. GDP growth rates peaked at 5.5 percent of GDP in 1998 then fell to 0.4 percent in 1999, 2000 at 2.5 percent, year 2001 at zero, 2002 at 2.4 percent and 2003 projected at 2.8 percent. Inflation rates have consisted of year 1985 at hyperinflation levels of 11,700 percent, 1989 at 20 percent, 1999 at 3.1 percent, 2001 at 2 percent. External debt is high at $5.8 billion USD (2001). Fiscal deficit is at 3.79 percent of GDP for 2002, 2003 estimated to decline to 1.6 percent. Unemployment is at 15 percent. Current account deficit figures have year 2000 at 7 percent of GDP, 2002 at 4 percent and 2003 at 3.2 percent estimated.
POSITIVE: IMF financial support announced in April 2003, service sector is growing quickly now at 40 percent of GDP, low cost workforce when compared to global market, telecommunications & energy sectors - excellent mobile cellular service, infrastructure is improving - roads & hiways. CONCERN: current account deficit, high external debt, high infant mortality rate, child labour.
BANKING SYSTEM: higher asset quality deterioration of Bolivia's leading banks in the late 1990's has resulted in banking system difficulties. From 1999-2001, bank lending contracted and a recent figure for year 2001 has bad debts at 20 percent of the lending loans. Banco Central de Bolivia is the nation's independent Central Bank responsible for monetary policy. Gross official reserves at year-end 2002 were at $854 million USD
(7 to 8 months of import coverage) and is projected to increase to approximately $1 billion USD for 2003 which is a a very healthy figure considering way back in 1991 Bolivia only had 1.6 months of import coverage.
REGIONAL ANALYSIS: Colombia, Brazil, Chile, Argentina, Peru
Regional economies are in recession with high unemployment & large foreign debts and they are experiencing challenging times along with their volatile currencies. Currency devaluations have taken place in Brazil and Argentina over the last few years. However, in some area's in close by Chile and Peru are booming. The crisis that has evolved in Argentina over the last few years has impacted Bolivia with lower FDI levels from Argentina as it is a major trading partner. Bolivia is geographically attractive due to it being in the centre of South America and surrounded by many countries including Brazil's giant $1 trillion USD economy. South America with 500 million people presents Bolivia with favorable business opportunities, hence its focus on building many new hiways. Within the region, there is a growing anti-globalization movement and backlash against privatization policies.
KNOWLEDGE: Bolivia is rich in natural resources mostly located in the delicate Amazon basin, of particular importance is Bolivia's huge potential in supplying natural gas to markets in Mexico and California. Bolivia's natural gas pipeline to Brazil will be worth approximately $300 million USD/year beginning in 2004. In additon, the new Pacific coast pipeline that British Petroleum is seeking to develop at a cost of $5 billion USD will be worth another $300 million USD/year in revenues to Bolivia once it is operational by 2007. International investment is already taking place from conglomerates such as British Petroleum, British Gas, Repsol YPF.
Year 2001 proven and probable natural gas reserves are at a stunning 70 trillion cubic feet. Bolivia is currently the number two producer of natural gas in South America. Approximate values have 10 million cubic feet worth $400 million USD. The development of Bolivia's energy sector is the key to the country's economic future and foundation to the stability of the boliviano. Great opporutnies lie ahead in this regard to Bolivia.
CURRENCY: ISO symbol 'BOB', Bolivian boliviano. At time of review on April 23,
2003, the boliviano had an exchange value of 7.562 BOB to 1 US-dollar ('USD'). The boliviano follows that of a crawling-peg exchange rate regime although the authorities are looking at making the boliviano more flexible. The USD is legal tender in Bolivia since 1985.
CURRENCY HISTORY: the Brazil devaluation in January 1999 did not impact the boliviano drastically as it maintained currency stability. Over the last 10 years, the boliviano has depreciated gradually versus the USD with no large sudden collapse in value with annual declines in the vicinity of 10 percent. Historical valuations have included year 1993 at 4.3 BOB to the USD, 1994 at 4.62, 1995 at 4.8, 1997 at 5.25, 1998 at 5.51, 1999 at 5.81, 2000 at 6.18, 2001 at 6.6, January 2002 at 6.86.
CURRENCY FORECAST: short term may see trouble although BI.C thinks Bolivia will avoid a currency crash. Fortunately, Bolivia's medium to long term currency forecast looks very positive once natural gas revenues are realized. Domestic social tensions and political risk remain and will be a key factor in the boliviano's future exchange value. A continuation of weak government leadership may help to ultimately undermine the boliviano. Bolivia's government must lead and implement policies no matter how unpopular to the benefit of the nation as a whole, not to win a popularity contest. UPDATED: April 23, 2003
