Public Information Notice: IMF Executive Board Reviews Bolivia's Performance Under Past Fund-Supported Programs

April 15, 2005


Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On April 8, 2005, the Executive Board of the International Monetary Fund (IMF) reviewed Bolivia's experience with IMF-supported programs since 1994, based on an Ex Post Assessment of Longer Term Program Engagement. Ex Post Assessments are prepared for countries with a longer-term history of Fund-supported programs in order to evaluate the success of past programs and draw implications for possible future IMF involvement.1

Background

Structural reforms in Bolivia during the 1980s and 1990s were among the most extensive of any Latin American country. Economic growth increased, and social indicators improved significantly. However, trend growth did not improve as much as had been expected, and poverty remains very high. After the economy was hit by a series of shocks between 1998 and 2002, average per capita income growth turned negative, the fiscal situation unraveled, and debt increased sharply. In 2002-2003, the country experienced several episodes of financial instability. While a crisis was averted, and growth recovered in 2004—in part driven by favorable terms of trade—the economic and financial situation remains fragile.

The Ex Post Assessment concludes that Bolivia did not do better for four main reasons: (i) governance problems and inadequate government services, which contributed to a poor business environment and inhibited growth; (ii) the adverse shocks of 1998-2002, which harmed Bolivia both directly and by generating social pressures that made reforms more difficult and led to persistent increases in government spending; (iii) incomplete or delayed implementation of critical financial and fiscal-structural reforms; and (iv) continuing financial dollarization, which remains a source of financial vulnerability. Significant progress in these areas will require a social consensus for reforms and institutional changes over the medium-term which has so far been elusive.

Executive Board Assessment

Executive Directors agreed that, in order to address Bolivia's main economic problems—insufficient growth, and fiscal and financial vulnerabilities—fundamental institutional and structural reforms are needed. These include improving governance, reducing and better managing public expenditure, creating a more equitable and efficient tax system, strengthening the banking system, and beginning a process of financial de-dollarization. In that context, Directors considered that extension of the Stand-By Arrangement will be helpful as a bridge toward a possible PRGF arrangement, while the authorities build sufficient social consensus over medium-term policies.

Bolivia: Selected Economic and Financial Indicators, 1995-2004

 

Average

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

 

1990-94

 

 

 

 

 

 

 

 

 

Prel.

(Annual percentage change)

Income and prices

                      

Real GDP

4.1

4.7

4.4

5.0

5.0

0.4

2.3

1.5

2.8

2.5

3.7

Real domestic demand

5.0

0.1

8.9

9.2

4.0

-2.0

1.2

-2.5

1.6

-1.3

2.6

CPI inflation (end-of-period)

12.3

12.6

7.9

6.7

4.4

3.1

3.4

0.9

2.4

3.9

4.6

                       

(In percent of GDP, unless otherwise stated)

Investment and savings

                      

Gross domestic investment

15.1

15.2

16.2

19.6

23.6

18.8

18.3

14.2

14.7

11.1

12.7

Public

9.5

8.2

8.2

7.2

7.0

5.0

5.2

5.8

5.4

4.7

5.3

Private, including stockbuilding

5.7

7.0

8.1

12.4

16.6

13.8

13.1

8.5

9.4

6.4

7.4

Gross national savings

9.7

10.2

11.7

12.6

15.8

12.9

13.0

10.8

10.6

11.7

15.7

Public

...

5.7

6.1

3.0

1.7

2.9

2.8

1.4

-0.4

0.2

3.5

Private

...

4.6

5.6

9.7

14.1

10.0

10.2

9.4

11.0

11.5

12.3

                       

Combined public sector

                     

Overall balance

-4.4

-1.8

-1.9

-3.3

-4.7

-3.5

-3.7

-6.9

-8.9

-8.1

-5.7

External financing

3.7

3.6

2.5

2.7

2.7

1.9

2.0

3.1

6.1

5.4

4.2

Domestic financing

0.7

-1.8

-0.6

0.5

1.9

1.6

1.8

3.9

2.8

2.7

1.5

Nonpension balance

...

-1.2

-0.7

-0.8

-0.7

0.6

0.7

-2.1

-3.9

-3.2

-0.9

Pension-related balance

...

-0.6

-1.2

-2.5

-4.0

-4.1

-4.5

-4.8

-5.0

-4.9

-4.8

Nonfinancial public sector debt 1/

...

72.5

65.7

60.5

60.1

59.7

58.8

53.7

61.6

73.8

74.6

External (incl. IMF)

...

57.4

50.6

45.9

45.3

49.7

47.3

36.1

42.4

51.3

52.6

Domestic

...

15.1

15.0

14.7

14.9

10.0

11.5

17.6

19.3

22.5

22.0

                       

External sector (US$ million)

                     

Current account

-5.5

-5.0

-4.5

-7.0

-7.9

-5.9

-5.3

-3.4

-4.2

0.6

3.0

Official grants and loans to the public sector

...

9.0

8.5

7.0

6.1

5.6

5.7

6.9

9.7

13.0

9.2

Direct Investment

...

2.6

5.8

11.1

11.2

12.3

8.4

8.3

8.7

2.5

1.3

                       

Merchandise export volume, percent change

10.3

10.8

3.1

2.0

4.7

-1.2

13.2

6.0

7.9

8.5

16.2

Merchandise import volume, percent change

6.0

-0.3

29.3

25.0

14.5

-10.6

3.0

-5.4

3.3

-10.1

11.5

Terms of trade, percent change (deterioration -)

-6.5

-9.1

5.2

4.8

-3.4

-2.7

3.5

-1.4

0.5

6.1

12.3

Gross international reserves

                      

(Months of imports of goods and services)

4.5

4.4

5.9

7.6

7.2

8.7

8.7

8.0

6.5

6.8

6.7

(In percent of broad money)

...

24.4

32.8

39.8

31.3

40.2

39.7

39.2

31.2

41.3

47.2

                       

(Annual percentage change, unless otherwise stated)

Financial Sector

                      

M3 growth (at current exchange rates)

39.8

9.5

25.0

17.3

13.7

4.2

3.4

3.4

-3.0

2.5

0.5

(in U.S. dollars at current exchange rates)

...

4.1

19.0

13.6

7.8

-1.8

-3.3

-5.1

-11.7

-2.0

-2.2

Credit to private sector (at current exchange rates)

39.6

12.6

13.6

19.2

23.8

4.1

-2.6

-8.0

-1.0

-0.5

-4.2

(in U.S dollars at current exchange rates)

        

17.4

-2.0

-9.0

-14.3

-9.4

-4.8

-6.8

Yield on T-bills in Bolivianos (e.o.p., percent)

27.9

26.6

16.5

11.2

12.2

13.6

14.7

12.9

17.2

10.9

10.6

Yield on T-bills in U.S. dollars (e.o.p., percent)

10.1

14.8

7.6

8.2

8.6

8.9

9.1

5.6

4.9

6.2

4.3

Banking system deposits

...

15.3

28.7

17.7

13.7

4.3

4.2

3.0

-4.3

0.3

-2.7

Foreign currency deposits (percent of total deposits)

80.7

80.4

92.1

91.9

92.2

92.9

92.6

92.2

91.9

90.6

86.5

Non-performing loans (percent of total loans)

...

6.2

4.7

4.4

4.6

6.6

11.6

16.2

17.6

16.7

14.0

                       

Exchange rates

                      

Bolivianos/U.S. dollar (end-of-period)

4.1

4.94

5.19

5.36

5.65

6.00

6.40

6.83

7.50

7.84

8.06

REER (percentage change during year)

-5.0

4.2

1.1

4.7

-1.3

2.2

-1.6

-3.2

4.4

-8.5

-5.2

Sources: Central Bank of Bolivia; Ministry of Finance; and Fund staff estimates.
1/ Reflects debt relief under the original and enhanced HIPC initiatives.

1 This PIN summarizes the views of the Executive Board as expressed during the April 8, 2004 Executive Board discussion based on the staff report.

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