Executive Summary

Bolivia’s economy has undergone structural economic transformation during Evo Morales’s presidency. Real (inflation-adjusted) per capita GDP grew by more than 50 percent over these past 13 years. This was twice the rate of growth for the Latin American and Caribbean region. Even as the Latin American regional economy slowed over the past five years, Bolivia had the highest growth of per capita GDP in South America.

For most of the past 13 years, Bolivia has had balance of payments surpluses, which helped to maintain macroeconomic stability. The country’s solid economic growth has contributed substantially to the reduction of poverty and extreme poverty. The poverty rate has fallen below 35 percent (down from 60 percent in 2006) and the extreme poverty rate is 15.2 percent (down from 37.7 percent in 2006).

Bolivia’s economic transformation was possible due to overarching political transformations in the country. These included a new constitution with significant economic mandates; nationalization and public ownership of natural resources and some strategic sectors of the economy; redistributive public investment and wage policies; policy coordination between the Central Bank and the Finance Ministry; and monetary and exchange rate policies directed toward de-dollarizing the Bolivian financial system.

The renationalization of hydrocarbons in 2006 was vital to Bolivia’s economic and social progress since then. In the first eight years of the Morales administration, national government revenue from hydrocarbons increased nearly sevenfold from $731 million to $4.95 billion. Although some of this was from price increases, most was a result of the nationalization and associated policy changes.

The importance of the government’s nationalization of hydrocarbons to Bolivia’s economic progress over the past 13 years cannot be overemphasized. These revenues were central to allowing the government to achieve macroeconomic stability (e.g., avoiding balance of payments problems, maintaining a stable exchange rate, enormously increasing public investment), as well as financing social spending.

It is also clear that the government’s ability to choose this vastly more productive path was only possible after breaking free from the constraints of IMF agreements. When Evo Morales took office in 2006, Bolivia had been operating under IMF loan agreements for 20 years, and its GDP per capita was lower than it had been in 1980. A trail of IMF documents show the Fund’s opposition to any kind of nationalization or even lesser attempts at increasing government control over hydrocarbon resources. “The [IMF] staff welcomed President [Carlos] Mesa’s commitment to veto any inappropriate hydrocarbons law,” reported the Fund’s fifth review under the Stand-by (loan) Arrangement in March 2005, little more than a year before the nationalization led by Mesa’s successor, Evo Morales.

While some of Bolivia’s economic policies during the past 13 years fit within standard policy prescriptions, others involve the use of a homegrown and heterodox policy toolkit.

For example, the Central Bank has applied unconventional monetary policy through a quantitative easing program starting in 2010, in order to purchase financial instruments issued by state-owned enterprises (SOEs), as well as government bonds. In December, 2018, almost half (44 percent) of the Central Bank’s balance sheet was invested in domestic assets (up from 12 percent in 2010). It is noteworthy that this significant increase in money created by the Central Bank was not accompanied by an increase in the rate of price inflation. The Central Bank’s funds are directed to contribute to Bolivia’s investment program in its strategic SOEs’ capital expenditures.

The government’s commitment to public investment is also outside of the currently dominant conventional wisdom, and has kept Bolivia’s public investment as a percent of GDP at the highest in Latin America. Overall investment (public and private) has also been substantially higher than in the past for Bolivia, averaging 21.8 percent of GDP over the past five years. And Bolivia’s efforts to promote economic growth have been focused on the domestic market, in line with its development strategy.

The change in the size of the Bolivian financial system has also been impressive. Deposits have grown at an average yearly rate of 14 percent (between 2008 and 2019). Bolivia’s exchange rate and monetary policies have been key factors in re-bolivianizing the financial system: the proportion of dollar deposits in the financial system has decreased from 34 percent in 2008 to 1 percent in 2019 thanks to a combination of disincentives and regulations. Directed lending for productive sectors and low interest rate ceilings are part of the toolkit successfully deployed by the monetary authorities. Total credit in the financial system has grown at an average of 16 percent per year since 2008.

However, significant challenges remain. Although Bolivia has experienced sustained economic growth during these years, it is still one of the poorest countries in South America. Its export sector remains concentrated in terms of products and destinations. Bolivia’s growth in investment has recently resulted in sizable but still sustainable current account deficits and large nonfinancial public sector deficits. The Central Bank has contributed to this by financing the capital expenditures of SOEs. No major risks are foreseen for Bolivia’s capital account, but it is noteworthy that a large stock of Bolivians’ financial assets are deposited abroad. While there has been a recent upsurge in Bolivia’s foreign-denominated public debt, it does not pose a short-or medium-term risk, mainly because it is very long-term and also concessional (i.e., at well below market interest rates).

Bolivian authorities are promoting important investments in food sovereignty and are striving to become an agricultural powerhouse, in order to diversify the economy. They are also attracting considerable investment in order to industrialize their raw materials, with the goal of becoming a global leader in the export of lithium batteries. These strategic investments are part of Bolivia’s Agenda Patriótica 2025 that guides its economic policy over the medium-term horizon.

- Andrés Arauz, Mark Weisbrot, Andrew Bunker, Jake Johnston

Report published by the Center for Economic and Policy Research (CEPR)

http://cepr.net/images/stories/reports/bolivia-macro-2019-10.pdf

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