1. NS4540 Winter Term 2017 Bolivia Economic Slowdown
Rabobank, Latin America: Turning the Populist page October 6, 2016

2. Overview
Bolivian economy growing at a faster rate than most others in South America
Public investment helping drive domestic consumption
Bolivia’s success explained in part by
The fiscal surpluses, and
Large reserves
Accumulated during President Evo Morales’s first two administrations ( , and )
However the country is not immune from the downturn in commodity prices, particularly those of hydrocarbons and minerals on which its prosperity ultimately depends

3. Shifting Dynamics I
Situation began to change in 2013 when the prices paid for Bolivian natural gas began to fall
Evident in 2015 when gas export revenue fell from $6.0 billion in 2014 to $3.7 billion.
Current account on balance of payments changed from a small surplus of $61 million in 2014 to a deficit of $1.9 billion in 2015 and $2.34 billion in 2016
The motor of growth therefore shifted to domestic demand
Rather than cut back on domestic spending, the Morales government chose to use public investment to maintain the pattern of growth although this fell off somewhat in 2015
Public investment in 2014 stood at $4.9 billion up form $2.9 billion in 2012 and $1.3 billion in 2008

4. Shifting Dynamics II
A large proportion of investment went to upgrading the country’s deficient transport infrastructure, particularly road building.
Another important area for public investment has been the search for new gas and petroleum reserves.
Increasing public expenditure as revenues from exports, particularly direct hydrocarbons tax (IDH) – were falling meant sacrificing fiscal equilibrium.
With expenditure already running well ahead of income in 2014 there was an overall public sector deficit equivalent to 3.4% of GDP
This grew to a deficit of 6.9% in 2015,and 8.1% in 2016

5. Shifting Dynamics III
Although Bolivia managed to finance the deficit in part from bilateral and multilateral credits, financing came mainly from the Central Bank.
Over the year, net international reserves fell by $2 billion to just over $13 billion
So far as net foreign direct investment (FDI) is concerned, this has increased moderately since Morales became president, with most going into the exploration and exploitation of hydrocarbons.
The average net inflow between 2006 and 2015 was $706 million, reaching a peak of $1.75 billion in 2013.
In 2014 net FDI had fallen back to $648 million and in 2015 it fell further to $503 million
By contrast remittances from Bolivians living abroad contributed slightly above $1 billion in 2014 and 2015

6. Looking Forward
Bolivia’s ability to maintain growth while suffering from a sharp overall decline in resources from abroad depends on the fiscal and foreign reserves built up over previous years.
This seems set to continue, at least in the short term
Economy set to expand at 3.7% in 2016 and 3.9% – average growth from was 5.3%
Bolivia has seen a dramatic reduction in those estimated to be living in poverty – from 63.1% of population in 2004 to 39.3% in 2015
Unemployment has fallen from 8.1% in 2005 to 3.5% in 2015
A large proportion of the workforce however is in the informal economy where wages are low