For Booming Bolivia, the Panorama is Mixed

After tremendous crises Bolivia is firmly in the ascendant, but slumping commodity prices could just as soon derail President Morales’ economic turnaround

Published by Anadolu Agency Oct 12

Bolivia has gone from basket case to case study under President Evo Morales, as its economy tripled on a commodities bonanza whose widely-distributed spoils helped to cut poverty.

Once the scourge of global financial institutions, the charismatic populist now has the International Monetary Fund’s seal of approval, as his transformed country reaps the benefits of prudent fiscal policies and stable inflation.

Soaring natural gas sales have filled state coffers, financing popular cash transfer programs and reversing years of rising inequality.

Meanwhile, investors are less skittish about nationalizations risk. Bolivia has become the top destination for direct foreign investment, relative to GDP in South America.

But just as a virile economy has been Morales’ strongpoint, it too has the potential to disrupt a likely third term.

Sliding raw material prices on softer Asian demand, plus slow growth in Argentina and Brazil – Bolivia’s main export markets for natural gas – could see its boom, and the delicate coalition of interest groups in the Movement for Socialism (MAS) party, unravel.

“Morales deserves some of the credit,” Raul Madrid, professor of government at the University of Texas in Austin, told The Anadolu Agency (AA).

“He renegotiated terms of gas contracts that brought huge revenues as prices have been high, while he’s been effective at maintaining relatively low inflation, and hasn’t gone on a wild spending binge like populists leaders of yore.”

Bolivia has grown more in the last eight years since Morales’ socialist movement swept to power, than over the past three-and-a-half decades. Expanding 6.8 percent last year, it’s forecast to surpass government targets of 5.7 percent in 2014.

With flagship nationalizations in the natural gas industry renegotiating the state’s take, Bolivia’s hydrocarbon revenue surged from 9.8 percent to 35 percent from 2005 to 2013.

Harnessing an upswing in the phenomenon of the “commodity supercycle” Bolivia’s boosted its foreign currency reserves fourfold to 48.4 percent in 2013 – the highest in the world as a percentage of GDP.

Swelled revenues have enabled leaps in poverty reduction, as the minimum wage for public workers tripled to $208 (1,440 bolivianos) per month and the state spent on welfare programs (bonos), including incentives for mothers to keep children in school and entitlements for the elderly.

And in symbolic gestures of Bolivia’s progress, this year the government launched a $300 million (2.1 billion bolivianos) telecom satellite, and built a $234 million cable car (pictured) to connect the capital of La Paz to the poorer city of El Alto. The project was paid for in cash.

View over La Paz, the world's highest city, from El Alto. A new cable car now links the two, cutting journeys from 2 hours to 15 mins (photo: Alex Pashley)
View over La Paz, the world’s highest city, from El Alto. A new cable car now links the two, cutting journeys from 2 hours to 15 mins (photo: Alex Pashley)

Poverty has fallen by 25 percent to a level of 45 percent from 2005 to 2011, while extreme poverty, less than $1.25 a day (9 bolivianos), tumbled by 43 percent, according to the national statistics agency.

“The economy has not just improved but it’s redistributed greatly,” said Mario Murillo, a sociologist at the Higher University of San Andres, in La Paz. “Now groups on the margins are leaving poverty and aren’t hitting the ethnic barriers (to jobs) that were there before.”

Bolivia’s bucking of a Latin American trend in narrowing income inequality has drawn praise from Alicia Barcena, the head of the Economic Commission on Latin America and the Caribbean (ECLAC).

The Morales government’s astute management of the economy sees it projected to return its charismatic leader to a third term Sunday.

Known popularly as ‘Evo’, openings of stadiums and schools bearing his name demonstrate the reverence many of the formerly silent underclass feel towards the former coca-leaf growing Aymara Indian. A reach not limited just to his working class power base.

“My vote’s blue this Sunday,” Jorge Gallo, a mathematics teacher, said referring to Morales’ campaign colors. “Before Evo we had no money, riots and violence – we were prey for international creditors. Now we stand up on our own two feet. Bolivia will continue to improve itself with five more years of Evo.”

An Evo campaign poster in downtown La Paz, (photo: Alex Pashley)
An Evo campaign poster in downtown La Paz, (photo: Alex Pashley)

Whether the rate of growth is maintained in the next five years, however, is in doubt.

Argentina and Brazil are stagnating, reducing sales of natural gas, which make up 30 percent of government revenue. Debates also rage on about state petrol subsidies that dwindle public finances.

In the short term, Bolivia benefits from being locked into 20-year contracts with its neighbors that guarantees minimum volumes, while oil prices have a 3-6 month time lag. But Bolivia’s approximately 57 million cubic meters of natural gas reserves are declining by 0.6 trillion cubic feet a day. Investment and exploration is crucial for it to honor its commitments.

“To attract that kind of investment the government will have to offer more competitive conditions to private and foreign investors,” said Cesar Arias, Latin America sovereign debt analyst at the Fitch credit rating agency.

Fitch moved Bolivia’s BB-rated debt from a “stable” to “positive outlook” in September as it pushed ahead with institutional reforms, easing regulatory bottlenecks and further risk of nationalizations. That is still below investment grade but shows greater willingness from investors to hold its notes.

“We see it as an encouraging sign that Morales is putting forward these reforms,” added Arias. “A more pragmatic approach to implement these laws in the third term will be key to the sustainability of the Bolivian model.”

In a move seen as promising for investors, in August Bolivia awarded $22.5 million (154.4 million bolivianos) to Jindal Steel & Power, an Indian mining firm that in 2010 pulled out early of a joint venture with the state in the country’s signature El Mutun iron ore mine, after a lengthy arbitration case.

Similar settlements with Argentine Pan American Energy and the UK-based Rurelec, reflected “the government’s desire to improve its international reputation,” wrote Nicholas Watson last month, a Latin American political risk analyst at Teneo Intelligence.

“However the lingering threat of resource nationalism will persist under the next Morales administration,” Watson added.

Bolivia’s raw-material driven economic policy runs counter to the development strategy known as “vivir bien,” or live well, launched by Morales in 2006, and encounters further problems.

Translated roughly as living in harmony with nature, Morales has come under attack for infrastructure plans that harm the environment.

Violent protests in 2011 over plans to build a highway through an indigenous nature reserve, named by the acronym TIPNIS placed pressure on the leadership.

“The TIPNIS episode has unclothed both the incongruence of official discourse with respect to mother earth, and the issue of corruption with Brazilian companies,” former Bolivian ambassador to the U.S., Jaime Aparicio, told the AA.

Momentarily suspended, if the government returns to the idea it could be the “breaking point,” he added.

Those on the left continue to criticize Morales’ economic policy for its lack of socialist credentials – what Jim Shultz, executive director of the Democracy Center based in Cochabamba, called an “extractivist set of policies no different from previous governments.”

Simmering discontent and susceptibility to commodity prices could see a “perform storm of chaos,” exposing divisions in the broad electoral group that is MAS.

“You get a rise in social movements and unions frustrated that they are not getting the benefits of the economic growth as they used to, and so more of them challenge the government,” Shultz added, leaving Morales a “lame duck.”

But while Bolivia continues to outstrip the 2005-13 average and the IMF projecting 5 percent growth next year, a reversal in the country’s fortunes isn’t here yet.

“While growth is strong, Morales is able to have his cake and eat it,” said Raul Madrid.

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