ReportNo.64SS-BO UpdatingEconomic Memorandum on Bolivia Public Disclosure Authorized December15,, 1986 Latin Americaand the CaribbeanRegion Country ProgramsDepartment II FOR OFFICIALUSE ONLY
SF , .bA%,, : X~~~~~~~~~~~~~~~~~~~~~~~~~T Public Disclosure Authorized CURRENCYEQUIVALENTS Currency Unit Bolivian Peso ($b) Exchange Rate Effective October 1986 US$1.00 = $bl,920,000 $bl,00O,00 = US$0.521 FOR OMCIL USEONLY FISCAL YEAR January 1 to December 31 ABBREVIATIONS BAB - Banco Agricola de Bolivia (BolivianAgriculture Bank) CAF - CorporaiKonAndina de Fomento (AndeanCorporation of Development) CBF - CorooracionBoliviana de Fomento (BolivianDevelopment Corporation) COB - ConfederacionObrera Boliviana(Bolivian Workers' Confederation) COMIBOL - CorporacionMinera de Bolivia (BolivianMining Corporation) CORDECRUZ- Corporacionde Desarrollode Santa Cruz (Development Corporationof Santa Cruz) ENFE - EmpresaNacional de Ferrocarriles(National Railways Corporation) FONPLATA - Fondo Financieropara el Desarrol)ode la Cueaca del Plata (FinancialFund for the Developmentof the River Plate Basin) GEOBOL - ServicioGeologico de Bolivia (BolivianGeological Services) IDA - InternationalDevelopment Association 1DB - Inter-AmericanDevelopment Bank IBRD - InternationalBank for Reconstructionand Development IMF - International Monetary Fund INE - InstitutoNacional de Estadisticas(National Institute of Statistics) ITC - International Tin Council USAID - United States Agency for InternaitonalDevelopment YPFR - YacimientosPetroliferos Fiscales Bolivianos (Bolivian PetroleumCorporation) This document has a restricted distribution and may be used by recipients only in the performamce of their official duties. Its contents may not otherwise be disckose without World Bank authorization. This report is based on the findings of an economic mission to Bolivia in August 1986 which consisted of Messrs. Frank Lysy (Mission Leader), Hugo Zea (Economist), and Michael Lubrano (Research Assistant). A draft report was discussed with the authorities in Ootober 1986, and an earlier version was distributed in November 1986 to members of the Bolivia Consultative Group. TABLE OF CONTENT!S Pag2 No. SUDMARY AND CONCLUSIONS...... i - iii CHAPTER1: THE 1980-85DECLINE...... 1 I. Introduction...... I II. The Declineof GDP, InternalImbalances and Inflation...... I III. The ExchangeRate, Exports,and the Balanceof Payments.... 5 IV. Conclusions*...... 9 CHAPTER 2: THE NEW ECONOMIC POLICY...... 10 I. ProgramConception and bjectives...... 11 II. Program Content...... 11 Access to ForeignExchange and Determinationof the ForeignExchange Rateo...... * 11 The Systemof Tariffso.0. 00 0 ...... ,...... 14 FiscalPolicy....o..0.0...... 14 Reformof PublicEnterpriseso...... o 16 FinancialSector Policieso...... o...... 18 The Incentives...... System *ooo*.ooo.oeeoe o 0...o.. 19 III. Program ...... Result 000*0000000000.... 20 IV. AreasWhere FurtherEfforts are Reauired...... 22 CHAPTER 3: MEDIUM-TERM PROSPECTS ...... 25 I. Introducticn.o.0...... ,000000*0000*00 25 II. Growthof Exports,Imports, and the DomesticDemand Aggregates...... ...... w28 Exportso... ooo..ooo..o.oo...... o....o.oo 28 The Growthof GDP and the Major DemandAggregates ...... 31 ITI. The Balanceof Paymentsand ExternalCapital Flows.....o... 36 IV. Conclusions...... 0000000*00 0000000* ,.c0 43 STATISTICALAPPMEDIX MAP(IBRD 16591) TABLESIN TEXT 1.1 Grovthof GDP and the Major DemandAggregates 1.2 Savings/InvestmentBalance 1.3 ConsumerPrice IntexMonthly Change 1.4 Ratio of ParallelMarket to OfficialExchange Rate 1.4 ExportPerformance 1.6 Balanceof Payments 2.1 The New Economi¢Policy, Program Content and Objeotive 3.1 Growthof Exports 3.2 M?4asuresof Performance 3.3 Growthof GDP and the Major DemandAggregates 3.4 GovernmentSavings 3.5 Savings/InvestmentBalance 3.6 Balanceof Payments 3.7 Net Financ$t.gRequirements 3,8 Debt and Debt ServiceRatios Page 1 of 2 COUNTRYDATA - B0LIVIA AREA POPULATION DENSITY(1985) ---- ...... ------I- 1,098.othous. sq k. b.4 million (1965) 5.1per sq. ku, Rate of6rowth: 2.6 (1995) 20.9 per sq. km.of arabIeland POPULATIONCHARACTERISTICS 11985) HEALTH11979) …...... …. .- . - CrudeBirth RateIper 1000) 43 Populationby physician 1845 CrudeDeath Rate (per 1000) 15 Populationper hospitalbed 456 Infant Mortality (per1000 live birthsi I1t INCOMEDISTRIBUTION (1973) DISTRIBUTIONOFLAND (197) of national incoge,highest quintile 59 2 areaexploited by top 10 of owners 4 lowestquintile 4 l areaexploited by smallest 12% of farmers ACCESSTOSAFE MATER (1980) ACCESSTOELECTRICITY (1976) I of population- urban 9b 2 of dwelings- total 33 rural lu NUTRITION(1985) EDOUCATION(1979) Calorieintake as I of requirements 81.8 Adult literacy rate 17 Percapita protein intake (gramsper dayi 50.4 Priaart schoolenrollment t 06 9NPPER CAPITA IN 1965: USS 470.0 6ROSSNATIONL PRODUCT IN 1985 ANNUALGROWTH RATES (L, constantprices) USS MU. 7.of GNP I975-190 1981-lM5 61iPat rket prices 3371.2 100.0 3.7 -4.4 GrossDomestic Investaent 244.b 7.3 -9.M -25.0 BrossNational Savings -103.0 -3.1 -7.0 N.A. CurrentAccount Oalance -347.6 -10.3 Exportsof 6oods& WFS 712.7 21.1 0.9 -6.1 Importsof Goods& IFS b64.4 19.7 -2.4 5.3 OlJTPUI,LABOR FORCE AND PRODUCTIVITI IN 192 ValueAdded LaborForce V.A US$ Nlnn 2 Thous. I US$ 2 Agriculture 768.0 19.7 793 41.6 968.5 47.4 Winningand Metallurgy 234.0 6.0 67 3.5 3492.5 166.1 lanufacturing 573.0 14.7 156 8.2 3673.1 179.8 Others 2321.0 59.6 891 46.7 2604.9 127.6 Total/Average 3896.0 100.0 1907 100.0 2042.0 100.0 6OVERNMENTFINANCE LonsolidatedPublic Sector CentralGoverneent SbTRILLION5 2 of uDP SbT11.LIO1S 2 of 6DP 195 1905 1965 1985 CurrentReceipts - 221.0 10.5 CurrentExpenditures 34.8 16.3 CurrentBalance -119 -5.6 -123.9 -5.9 CapitalExpenditures 00 3.8 45.3 2.1 ExternalFiaancing (net) 5 0.2 3.2 0.2 _------Page 2 of 2 CUNTRDATA - DIVIA .P_,...... AOMEY,CREDIT AND PRICES INO 19111 192 19 194 195 (Hill.ns ofI * outstandingend of period) Onyand luasi Hone 22.5 25.0 69.0 235.0 3,81 21,639 OankCredit to PublicSectr 14.0 20.0 147.0 569.0 7,202 1,233,318 atk Credit to Private Sector 19.0 24.0 97.0 212.0 3,11N 45,347 Honeyand Quasi Noney as I of 6DP 18.2 16.3 22.9 18.7 20 14 OeneralPrice Index 1966,a100) 691.6 923.1 2063.5 7750.3107,059 12,,008 Annualpertentage changes in: GeneralPrice Index 47.2 32.1 123.5 275.6 1,291 1l,74 BnkCredit to Public'ector 67.0 43.0 635.0 287.0 1,165 17,024 BankCredit to Prifate Sector 14.0 26.0 304.0 IlO 1,404 15,114 BAICE OFPAYHENTS 1975 1930 1965 HERCHANDISEEIPORTS (AVERAE 1993-1935) Ililliots of US) US$ Iln. I Exportsof 6o0ds, IFS 505.0 1023.6 712.9 Tin 107.0 14.1 ImportsofGoods, NFS 641.0 795.4 664.4 OtherNinerals 109.0 14.4 Resource6ap Ideficit x -) -136.0 228.2 40.5 Hydroarbon 394.0 52.0 AgriculturalProducts 30.0 4.0 InterestPayments (net) -24.0 -251.4 -320.6 Other 117.0 15.5 OtherFactor Payments (net) -13.0 -43.6 -09.9 NetCurrent Transfers 3.0 12.7 14.5 Total 757.0 100.0 BalanceanCurrent Account -170.0 -54.0 -347.5 Direct Investaent 35.0 43.9 10.0 PublicHILT Loans (net) 111.0 20.4 -235.3 HlLTEIITERII BEUT, DEC. 31, 198 US$ IBn. ExceptionalFinancing 0.0 188.1 358.7 ------…------Errors and Omissions -27.5 -397.5 184.9 Public Debtincluding guaranteed 3259 Other 101.5 30.9 73.7 Non-GrnteedPrivate Debt Changein Reserves -50.0 -95.0 -44.5 TotalOutstnding I isursd 1- * increase) DET SERVICERATIO FOR 1905 2 HILTPublic Debtincluding guaranteed 44.8 Non-GaranteedPrivate Debt Total Outstanding& Disbursed RATEOF EIC1ASGE IJ I0188D1ALENING, DIECEER 31, 1985(Kin. US$1 _------__ ------__--- ._ - -...... ------1980 IIRD IDA US$ 1.00: 8 $ 25 OutstandingI Disbwrd 208 94 08 1.00a USS 0.040 Undisbursd 14 11 OutstandingicK. Undisursed 222 105 1985 US* 1.00a 3S 731141.00 B $ 1.00a USS 0.00000137 I Averageannual rates. .. not available. Novenber6, 1906 SUMMARYAND CONCLUSIONS i. The new Governmentof Bolivia that took office in August 1985 faced a situationof unprecedentedeconomic decline. Per capitaGDP had fallenby one-thirdsince 1979, inflationin the first half of 1985 was averaging60% a month (equivalentto 28,000Xa year), and the deficitof the consolidatednon-financial public sectorhad reached24X of GDP in 1984. The economyhad appearedto have done well in the 1970s when GDP growthaveraged 5.4% until 1978. However,this growthwas based in large part on foreignborrowing, and debt built up rapidlyfrom a level of $500 millionin 1970 to $2,400million by 1980. This borrowingwas not, on the whole,used productively,and when externalcreditors reduced lending in 1979-80the economydid not have the resourcesto servicethis debt. Instead,the economyembarked on a downwardspiral of fallinginvestment, savings,exports, consumption and GDP. Inflationgrew to levels unprecedentedin Latin America,and the public sectordeficit widened. The exchangerate appreciatedin real terms as the Governmentmade futile attemptsto maintaina fixed nominalrate system. Extremeprice distortionsopened up. As severeas the deteriorationin each of these variableswas, of greaterimportance was the interlockingnature of the system. This made attemptsto deal with the variablesone at a time ineffectual. ii. Faced with this crisis,the new Governmentannounced within a few weeks of takingoffice an economicprogram of unprecedentedbreauth. The programwas comprehensiveand coherent,with measuresaimed at both stabilizationand reform,and led to a fundamentalreorientation of incentivesto marketdetermined levels. The originalannouncement was on August29, 1985, but the programhas, of course,been modifiedas well as extendedin the year since then. The Governmenthas also had to react to a seriesof externalshocks over the past year, includingthe collapseof tin pricesin October1985, the drop in oil pricesin early 1986 (with consequencesfor Bolivia'ssales of naturalgas to Argentina),and the effortsto interdictcoca processingin July 1986. iii. For the externalsector, the reformprogram established an auctionsystem for foreignexchange which has effectivelyunified the officialand parallelmarkets. The parallelmarket is completelylegal and open, and the differentialbetween the officialand parallelrates has been consistentlybelow 1%. Access to the officialforeign exchange market is unrestricted.Quantitative restrictions on importsand exportshave been lifted,and there are also no restrictionson foreigncapital transactions.The pzevious,complex, system of importtariffs has been replacedwitb one of a uniformrate of 20%, thus equalizingprotection acrosssectors. Insteadof a differentialsystem of export incentives, there is a uniformexport rebate of 10%, appliedagainst direct and indirecttaxes. The Government'sfiscal policy has been to avoid recourse to the CentralBank to cover expenditures,and thus the Governmenthas been run on an essentiallycash basis,with very tight controlson expenditures.Public sectorwages have also, of necessity,been tightly controlled.To increasepublic sector revenues immediately, the Government increasedthe domesticprice of petroleumproducts to world market levels (and perhapssomewhat beyond), and transferredthe revenuesthus createdto the generaltreasury. For the longerterm, the Governmenthas passed into law a comprehensivetax reformwhich replacesthe earliersystem with one - ii - based on taxationof value-addedand of wealth. The designof the new tax systemalso containsunique mechanisms for self-enforcementwhich should greatly improvecollections. Reform of publicsector enterprises, although slow and difficult,has begun. It is clear to all, particularlywith the collapseof tin prices,that the state mining enterpriseCOMIBOL, will have to be drasticallyscaled back, and to this end about one-thirdof the workersaccepted termination/relocation grants between January and August 1986. A furtherthird will be similarlyterminated by the end of the year. CBF, the BolivianDevelopment Corporation, with widespreadholdings in directlyproductive activities (such as the productionof glass,dairy products,etc.) has been dissolved,with its assetstransferred to the RegionalDevelopment Corporations. The pricingof railways, telecommunications,electricity, and other publicsector services, has been reformed. In the financialsector, controls on interestrates have been lifted,restrictions on financialtransactions have been removed,and plans are now being developedfor a fundamentalrestructuring of the CentralBank and the publicsector development banks, Banco Agricolaand Banco del Estado. Price controlson goods were lifted,and labor restrictions removed. iv. The resultsof the reform for stabilizationwere immediate. With the exceptionof some slippagein December1985-January 1986, inflationhas averaged2% a month and the exchangerate has been stable. The fiscal deficithas been reducedto what is externallyfinanced, and external reserveshave been rebuiltto comfortablelevels. However,problems of courseremain. Real interestrates are high, and GDP will probablydecline again in 1986 for the seventhconsecutive year. Unemploymentis high. It is clear that continuedefforts will be necessaryto extendthe reforms. Successfulimplementation is critical,yet also difficultas the qualityof the civil servicebelow the top levelsis weak. This is in part the consequenceof the currentlyvery low levelsof publicsector wages. Generalpublic sectorwage increaseswill have to be modestuntil the tax reformbegins to yield significantrevenues, yet implementationof the tax reform(and other reforms)will be difficultwithout quality personnel. The programmingof publicsector investmentshas also been weak. It is clear that initialefforts will have to be directedto investmentswhich are quick-yieldingand which serve to spur exports,either directly or indirectly.The maintenanceand rehabilitationof existinginfrastructure, plus the completionof projectsalready well underway,should have top priority. v. Boliviafaces difficultprospects over the medium-term.It is burdenedby the structuralproblems of the L%'zeof the debt it has inherited,and by the concentrationof its legal exportsin two commodities which pose specialproblems, tin and naturalgas. Its existingexternal debt is about 525% of its exportsof goods and services,and about 100% of GDP. Intereston the debt is accruingat 7% of GDP. These are among the highestsuch ratiosfor any countryin Latin America,yet Boliviais one of the poorest. Tin and naturalgas accountedfor 90% of Bolivia's merchandiseexports in 1985. With the collapseof the tin market in October1985, the effectiveprice of tin has droppedto less than half of what it was before. The collapseof internationaloil pricesin early 1986 - iii - left the price of Boliviannatural gas sold to Argentinafar higher than oil equivalentlevels. Even after a 12X cut in the gas price effectivefor 1986, the gas was pricedat a level equivalentto about $22-$23per barrel of oil, while the world price for oil in 1986 fluctuatedin the $8-$16 range. Finally,the interdictionof coca processingplants in July 1986 led to a suspension,at least temporarily,of the cocainetrade. Estimates of the value of illegalcoca/cocaine exports range up to the equivalentof Bolivia'stotal legal exports,when valued in terms of revenuesbrought back into the economy. vi. The stabilizationand reformprogram has set the stage for a recoveryin the economy. However,the structuralproblems Bolivia faces are such that continueddebt reliefwill be necessaryto keep the balance of paymentsmanageable. Exportsother than tin and gas shouldbe able to grow quickly,but these start from such a low share of total exportsthat overallexport growth will still be low. But with continuedrestructuring of Paris Club debt and if the presentde facto arrangementsontinue, wherebycommercial bank debt is not servicedor some arrangementwith about equivalenteffects is agreedupon, Boliviashould be able to financethe importsrequired for its economicrecovery until about the end of the decade if substantialincreases in new commitmentsfrom the multilateral (includingthe IMF) and bilateralfinancing agencies are forthcoming. This is a substantialachievement which would have been impossibleunder the Governmentpolicies of beforeAugust 1985. However,even these efforts,great as they are, are likelyto prove insufficientin the 19909. Beginningin 1990 when the first repaymentunder the June 1986 Paris Club reschedulingcomes due and when large repurchasesfrom the IMF begin, and in 1992, when the 20-yearnatural gas contractto Argentinaexpires, Boliviawill on presentassumptions, face a large,unfinanced gap in its externalbalances. Furthermore,such externaldebt indicatorsas the debt to exportor debt to GDP ratiosworsen over the period. vii. The solution to this dilemma of the 1990s will necessarily involvea broad-basedapproach to developexports further, mobilize additionalexternal finance, and obtain furtherdebt relief. It may be necessaryto recognizethat Boliviawill not be able in the foreseable future to service its commercial bank debt in the normal way, and that therefore mechanisms need to be found to allow for some extraordinary means of debt restructuring.Calculations of what would be neededalong the lines of such a broad based approachindicate that should it be possibleto raise the rate of growthof non-gasexports from the alreadyhigh rate of 9.3X per annum (from1989) to the rate of 13.4%,plus increaseexternal gross disbursementsby about $140 millionper year (or about 26%) as well as obtain furtherdebt relief,then the financinggap for the 1990s could be closed. In addition,standard debt ratiosbecome far better and are on an improvingtrend. Such an outcomewill requireefforts, however, well beyondthose achievedthus far. A carefullythought through public sector investmentprogram will be critical,and more generallya seriesof well-developedsector strategies. The Governmenthas begun work on such a long-termstrategy, with the quite appropriateapproach of beginningat the sectorallevel to map out poosibilities,strategies, and what further reforms may be necessary. A reasonable goal would be to have this work completed within a year. CHAPTER1 The 1980-85Decline I. Introduction 1. The governmentof Victor Paz Estenssoro,upon takingoffice in August, 1985, was faced with a situationof unprecedentedeconomic decline. Per capitaGDP was 32% below the level it had reachedin 1979, and inflationin the first half of 1985 was runningat a monthlyrate of 60%, equivalentto 28,000%at an annualrate. This chapterwill providean overviewof this processof decline,reviewing the movementsin the principaleconomic variables. The purposeis to set the stage for the discussionin the remainderof this report of the programof reforms institutedby the Paz government,and the reviewof Bolivia'smedium-term prospects. ,%e analysishere can only be brief; for an in-depthreview of the period,readers are referredto the previousWorld Bank Country EconomicMemorandum for Bolivia,issued in August, 19851/. II. The Declineof GDP. InternalImbalances,-and Inflation 2. The declinein output,the macro imbalancesas reflectedin how the savings/investmentequality was achieved,and inflation,were intimatelyinterrelated during 1980-85period. The relevantfigures are summarizedin Tables 1.1, 1.2, and 1.3.2/ 3. The Bolivianeconomy grew at a rapid pace in the 1970s,when it enjoyedan averagereal growthof GDP of 5.4% between 1970 and 1978. This was unprecedentedfor Boliviain the modern era. The economyfaltered, however,in 1979,when GDP growthwas essentiallyzero, and GDP then turned I/ World Bank, EconomicMemorandum on Bolivia,Report No. 5680-BO, August 2, 1985. 2/ Extensiveuse will be made in this chapterof estimatesof the key economicaccounts. A warningshould be given,however, that although adequatefor the identificationof basic trends,the basic data are, in fact, quite poor. Aside from the standardproblems arising from the scarcityof basic informationplus weak institutions, difficultiesarise from the unprecedentedinflation. With prices increasingat times at a pace of 2% per day, the estimatesof the real level of outputdepend critically on the deflatorsused and what is assumedfor the timingof the expenditures.The poor qualityof these data is reflectedin the frequent,often major, revisionsin the estimatesmade for earlieryears, and in many apparentinternal inconsistenciesin the data. The figureswhich will be used below derive ultimatelyfrom estimatesmade by Bolivia'sCentral Bank and NationalIustitute of Statistics. These estimateshave been modified by both IMP and World Bank staff. The data base is thereforeweak. However,for the identificationof the basic trends,which will be the concernof this chapter,the estimatesshould suffice. -2 - Table 1L1: GROWTH OF GDP AND THE MAJOR DEMANDAGGREGATES (growthrates in percent) 1980 1981 1982 1983 1984 1985 GDP -1.4 -0.4 -5.6 -7.2 -2.4 -4.0 Total Consumption 0.4 9.4 -9.4 -2.4 -9.2 3.3 PrivateConsumption 1.8 14.3 -14.4 -4.4 -12.0 10.1 Public Consumption -6.4 -14.1 23.4 6.4 1.9 -20.4 Total Investment -28.1 -12.5 -26.1 -39.2 38.9 -32.7 PrivateFixed Investment ) -48.3 23.7 -10.7 -16.4 -8.6 PublicFixed Investment 24.0 _ 14.5 -21.9 -29.1 -28.0 -17.0 Exportsof Goods and Non- FactorServices -4.8 -21.7 -9.6 -14.3 32.9 -9.8 Importsof Goods and Non-FactorServices -20.9 11.0 -40.9 -8.0 10.4 14.0 down In 1980. Startingwith the 1980 decline,Bolivia suffered negative growthin aggregateoutput in each year to 1985,and this is likelyto have continuedinto 1986. 4. The economicboom of the 1970s had been supportedby foreign lending. The consequentgrowth in medium-and long-termforeign debt was from a level of only $499 millionin 1970, to $857 million in 1975,and to $2,399million in 1980. Exportsalso rose, but largelyonly in nominal terms. In termsof 1970 prices,merchandise exports in 1979 were only 17% higher than their level in 1971. The foreignlending permitted a rapid growthin imports,as well as an excess of importsover exports. The resourceor trade deficit (goodsand non-factorservices) averaged 4.6% of GDP in 1975-78(see Table 1.2). With privatedomestic savings averaging 14.9%of GDP in 1975-78and governmentsavings 3.3% of GDP, total domestic savingswas 18.2%,which is quite respectablefor a countryat Bolivia's stageof development.Total savings (domesticand foreign),and hence total investment,was 22.8%of GDP. 5. The net foreignlending ended abruptly,however, in 1979-80,as it becameobvious that not only had Bolivia'sforeign debt becomeexcessive, but that much of the lendinghad been used for projectsof doubtfulvalue, , Table 1.2: SAVINGS/INVESTMENT BALANCE (shares of GDP in %) Change in Percentage Shares 1980 vs. 1985 1975-78 1975-78 VS. Average 1980 1981 1982 1983 1984 1985 Average 1980 A. Total Investment 22.8 14.1 12.4 9.8 6.6 8.8 6.5 -8.7 -7.6 1. Private Fixed Investment 19.5 7.3 3.8 5.0 5.0 4.0 4.0 ) -3.3 2. Public Fixed Investment ) 7.0 8.0 6.6 5.0 3.6 3.3 )-52 _3.7 3. Inventory Accumulation 3.2 -0.2 0.6 -1.9 -3.5 1.2 -0.8 -3.4 -0.6 B. Total Savings 22.8 14.1 12.4 9.8 6.6 8.8 6.5 -8.7 -7.6 1. Gross Domestic Savings 18.2 18.1 10.0 13.6 9.4 12.1 7.7 -0.1 -10.4 A. Consolidated Non-Financial Public Sector 3.3 -2.2 -0.9 -8.9 -18.0 -23.8 -9.0 -5.5 -6.8 i) Revetiues 14.9 13.2 15.3 11.5 11.3 4.8 11.3 -1.7 -1.9 ii) Current Expendituresl/ 11.6 15.4 16.2 20.4 29.3 28.6 20.3 3.8 4.9 B. Private Sector 14.9 20.3 10.9 22.5 27.4 35.9 16.7 5.4 -3.6 2. Foreign Savings (Trad'. Deficit) 4.6 -3.9 2.4 -3.9 -2.8 -3.3 -1.1 -8.5 2.8 1/ Public sector current expenditures include transfer payments. Note: Totals may not add due to rounding. - 4 - or for capitalflight.3/ Foreignsavings (the trade deficit)therefore swung from 4.6% of CDP In 1975-78to a negative3.9% of GDP in 1980 (i.e., to a trade surplus). Domesticsavings at first held up, stayingat 18.1% of GDP In 1980,or about the same level as in 1975-78(see Table 1.2). The negativeswing in foreignsavings of 8.5% points of GDP between1975-78 and 1980 was thereforematched by a reductionin investment. Furthermore,with the supply of Importedgoods sharplyreduced, as well as other factors, inflation(as measuredby the CPI) rose to a rate of 47% in 1980 (see Table 1.3) after averagingonly 7.8% a year in 1975-78. Table 1.3: BOLIVIA- CONSUMERPRICE INDEXMONTHLY CHANGE Month 1980 1981 1982 1983 1984 1985 1986 January 1.8% 12.4% 2.52 0.61 9.6% 68.8% 33.0% 1?ebruary 0.4% 1.9% 16.1% 10.31 23.02 182.82 8.0% March 1.7% -0.3% 8.2% 11.8% 21.1X 24.9% 0.1X April 0.9% 0.1% 12.6% 8.5% 63.0% 11.8% 3.6% may 3.0% 2.2% 4.0% 9.1% 47.02 35.7% 1.0X June 5.5% 0.1% 4.7% 3.2% 4.12 78.5% 4.3% July 1.5% 1.4% 21.6% 10.1% 5.21 66.3% 1.8% August 3.3% 6.0% 17.9% 25.9% 15.0% 66.5% 0.7% September -2.4% -0.5% 19.5% 16.4% 37.3% 56.5% October 1.4% 0.72 14.4% 11.5% 59.1% -1.9% November 1.1% -0.1% 19.0% 24.8% 31.6% 3.2% December 3.7% -0.6% 7.8% 25.92 60.92 16.8% Average change of Year (at an annual rate) 47.2% 32.1% 123.5% 275.6% 1,281.3% 11,749.6% 6. The 1978-82period was also marked by politicalinstability, and this, in itself,was undoubtedlya factorin the reductionin new foreign lending. Nine presidentswere in office over five years. In 1981, the policiesof the governmentof GeneralGarcia Meza led to a consumption boom, supported by a complete opening up of imports. The importswere financed by an increase in arrears on amortization payments, a major drawdown of international reserves, and disbursements on some new borrowing the governmentwas able to arrange,much of it from Argentina. This was supplemented by a largely unrecorded inflow of consumer goods financed by the earnings of the growing drug trade. The consumption boom led to a declinein gross domesticsavings to a level of only 10.0%of GDP, from 18.1%in 1980 (as well as before),and domesticsavings has fluctuated around this new, lower,level since then. 3, See the World Bank economicreport cited in footnote1 above for furtheranalysis of this point. - 5 - 7. In 1982, importshad to be out baok again and drastioally, becauseof the lack of offioialforeign exchange. Importsof goods and non-faotorservices fell by 41% in real terms (Table1). The temporary trade deficitof 1981 returnedto a surplus,that is, foreignsavings again beoame negative. Investmentcontinued the downwardspiral which had begun in 1980, and remainedat levelsbelow 10% of GDP from 1982 on (Table2). Gross domesticsavings fluctuated in the range of 9-1/2 to 13-1/2%of GDP. Governmentdis-savings grew, however,from 0.9% of GDP in 1981 to 23.8% of GDP in 1984, as currentpublic sector expenditures rose while Government revenuesdeclined, and both were symptomsof a governmentfinancially out of oontrolin a hyperinflationaryenvironment. Private domestio savings rose in the nationalaccounting sense to offset the governmentdie-savings, reaching35.8% of GDP in 1984. This privateseotor savingswas forced, however,and was a consequenoeof the governmentsimply printing money to pay its bills, or not payingits bills at all and insteadrunning up arrears. 8. Inflationgrew to levelsnever beforeexperienced in Latin America. The annualrate was 47% in 1980, and temporarilydropped to 32% in 1981 when importswere freelyallowed in, but then grew to 124% in 1982, 276% in 1983, 1,281%in 1984, and 11,750%in 1985 (Table1.3). The rate between Januaryand September,1985, was 28,800%,in annual terms,with an averagemonthly rate if a littleover 60%. III. The Exchange Rate, Exports, and The Balanceof Payments 9. The Government attempted to maintain a fixed exchange rate regime through this period,but was forcedbecause of the rapid inflationto punctuatethis with a seriesof sharp devaluations.There were seven officialdevaluations before the switch to the auotionsystem on August 29, 19854/with the size of those seven devaluationsranging from 50% to 440%: However, without a resolution of the underlying savings/investment imbalances through some mechanism other than forced private sector savings, the nominal devaluationsachieved little. In fact, nominaldevaluations insteadwould simplyaccelerate the pace of inflation necessary to generate the level of privatesector savings required. 5/ 10. The level of the parallel market exchange rate provides some indicationof the degreeof distortionin the officialexohange rate. The ratio of the parallelto the officialrate is shown in Table 1.4, by month. These ratioswould grow over time, but drop back wheneverthere was an officialdevaluation. The ratiosgrew larger,however, through each cycle,and by 1984 the parallelrate was reachingat times a level more than 7 times the officialrate, and by August 1985 had reacheda ratio of more than 15 times. 4/ See ChapterII of this reportfor a description. 5/ For a furtherdescription of how this processworked, including its effectson the governmentbudget and on such exportingpublic sector enterprisesas COMIBOLand YPFB, see the World Bank Economic Report cited in footnote 1 above. - 6 - 11. With the severelyovervalued official exchange rate, it is of littlesurprise that exportsdid poorly. In addition,international metals pricesfell f:om the peak level they had reachedin 1980.6/ The performanceof Bolivia'sexports, and their prices,is shownin Table 1.5. Between 1980 and 1985,Bolivia's total export revenues fell by $310.7 million,or by 30% of their 1980 levels. All categoriesof exportsfell, exceptnatural gas which was sold to Argentinaat constantvolume. The gas was also increasedin price in a laggedresponse to the 1979-80increase in internationalpetroleum prices, with price increasesof 78% in 1980, a further 42% in 1981, and 8% in 1982. Excluding this gas, Bolivia's e;tports fell by $462 million between 1980 and 1985, or by 58% of the 1980 level of exports other than gas. Table 1.4: RATIO OF PARALLELMARKET TO OFFICIAL EXCHANGERATE 1981 1982 1983 1984 1985 1986 January -.- 1.71 1.66 3.40 7.19 1.04 Feburary - 1.12* 2.20 4.11 2.87* 1.01 Marhi _._ 1.16 2.42 4.93 2.36 1.00 April -.- 1.81 2.02 2.48* 3.10 1.01 May -._ 2.02 1.86 1.63 3.84* 1.02 June -.- 2.39 2.20 1.73 6.08 1.01 July _._ 3.45 2.63 1.73 11.18 August 1.14 4.35 3.66 3.42 15.58 September 1.22 5.40 3.88 6.46 0.99* October 1.35 5.16 4.63 7.37 1.00 November 1.43 1.45* 4.08* 7.75* 1.06 December 1.55 1.44 2.48 2.63 1.08 Note: Prior to the introductionof comprehensiveexchange controls in July 1981, the parallelmarket was not active. * A devaluationof the officialexchange rate occurredin each of these months.From August29, 1985, the officialexchange rate has been determinedthrough an auctionsystem. 12. Overall,Bolivia's terms of trade did not sufferduring this period. As an energyexporter, it benefittedfrom the cil priceincreases of 1979-80.Metal pricesdid fall relativeto 1980,but as alreadynoted 6/ The 1980 internationalprice was a temporarypeak for most of the metals of importance to Bolivia, particularly tin. Thus althoughthe tin price fell back in 1981-82 from its 1980 levels, it was still higher up to 1985, in real as well as nominal terms, than at any time beforethe mid-1970s. This can be ascribed, at least in part, to the activitiesof the InternationalTin Councilwhich provednot to be sustainablewith the October1985 collapse. -7- Table 1.5: EXPORTPERFORMANCE Change 1980-85 Change Change as 1980 1981 1982 1983 1984 1985 in % of 1980 Dollars Level A. Levels in millions of US dollars 1. Metals and Minerals 641.1 556.0 419.3 347.3 364.0 263.8 -377.3 -58.9% of which: Tin 378.1 343.1 278.3 207.9 247.8 186.6 -191.5 -50.6% 2. Hydrocarbons 245.1 346.5 398.4 420.1 388.9 374.5 129.4 52.8% of which: Natural Gas 220.9 336.7 381.6 378.2 375.7 372.6 151.7 68.7% 3. Non-Traditionals 149.9 92.7 80.4 50.1 29.2 34.3 -115.6 -77.1% 4. Non-FactorServices 01.4 87.2 76.3 97.1 87.5 89.5 8.1 10.0% Less: RealizationCosts I/ -93.9 -82.9 -70.5 -62.3 -57.6 -49.1 44.8 -47.7% TotalExports of Goods and Non-FactorServices 1,023.6 999.6 904.0 852.2 812.0 712.9 -310.7 -30.4% Total Exports Excluding Natural Gas 802.7 662.9 522.4 474.0 436.3 340.3 -462.4 -57.6% B. Average Price Indices 1. Metals and MLnerals 100.0 80.7 70.7 71.0 74.3 69.2 2. Hydrocarbons 100.0 140.7 150.3 147.8 153.7 154.9 3. Total Exports of Goods and Non-FactorServices 100.0 98.8 95.0 94.6 98.1 97.7 4. Total Imports of Goods and Non-FactorServices 100.0 99.1 96.8 95.3 94.2 93.7 5. Terms of Trade: 1980-100.0100.0 99.7 98.1 99.3 104.1 104.3 Average of 1974-78=100.0 133.2 132.8 130.7 132.3 138.7 139.0 1/ "Realizationcosts" in the Bolivian system of accounts are trade, transport,and processingcosts incurredoutside the country for their exports. - 8 - 1980 registereda temporarypeak in the prioesof the metalsof importance to the oountry. Using 1974-78average export and importprices as a base, Bolivia'sterms of trade were 30 to 40% betterin 1980-85,and fairly stable throughthe period (see Table 1.5). The declinein Bolivia'sexport revenuesduring the periodcannot thereforebe attributedto adverse internationalprice developments,with the exception,perhaps, of some of the metals. Rather, the principalproblem was with domesticpolicies. 13. The resultinginternational balance of paymentsis shown in Table 1.6. With exportrevenues reduced and net foreigncapital inflows less than intereston the foreigndebt, importswere squeezed. The trade balancewas in surplusin each year but 1981 where, as noted above, non-sustainablemeasures permitted a temporaryboom in importsand consumption. However,interest on the debt that had been built up in the 197087/was now sizeable,and increasedalso becauseof the high internationalinterest rates of the period. The currentaccount was Table 1.6: BALANCEOF PAYMENTS (levelsin millionsof US dollars) 1980 1981 1982 1983 1984 1985 A. ResourceBalance 228.2 -110.0 223.3 166.7 214.9 48.5 1. Exportsof Goods& UFS 1,023.6 999.6 904.0 852.2 812.0 712.9 2. Importsof Goods & NFS 795.4 1,109.6 680.7 685.5 597.1 664.4 B. Net FactorServices -295.0 -395.3 -459.1 -411.0 -431.2 -410.4 1. FactorService Receipts 22.1 22.0 14.4 46.8 36.0 24.5 2. Factor ServicePayments 317.1 417.3 473.5 457.8 467.2 434.9 a) Interest 265.5 348.4 412.0 341.9 361.3 336.6 i) Paid 261.0 331.2 290.5 298.3 292.1 162.6 ii) In Arrearsor Capitalized 4.5 17.2 121.5 43.6 69.2 174.0 b) Other FactorService Payments 51.6 68.9 61.5 115.9 105.9 98.3 C. Net PrivateTransfers 12.7 13.3 16.7 40.2 21.8 14.5 D. Balanceon CurrentAccount -54.1 -492.0 -219.1 -204.1 -194.5 -347.4 Nemo: Total MLT Debt 2,399.4 2,828.8 2,982.7 3,570.3 3,607.1 3,869.2 B/ Which,as noted above,had grown from $857 millionin 1975 to $2,399 millionin 1980. -9- thereforein deficitby $492 million in 1981 and by about $200 million in each year 1982-84. This, in turn, led to a growingdebt, which idcreased the interestobligations in the future (for given levelsof the interest rate). That is, the debt was compoundingon itself. The limitednet capitaldisbursements Bolivia received were therefore,in essence,used to pay part of the interestdue. These net disbursements,plus the trade surplusBolivia achieved through squeezing imports, did not suffice, however,to cover all the interestcoming due, and the governmentinstead had to resortincreasingly to arrears. IV. Conclusions 14. Bolivia'sproblems in 1980-85were interlocking,and increasingly so as time went on. A reductionin the availabilityof foreignresources led to reducedimports and a declinein investment,in output,and hence in livingstandards. h. attemptto boost consumptionin 1981 reduced savings. Increasedgovernment expenditures reduced public sector savings as well. Pricesbegan to rise at a rapid rate, but the governmenttried to maintainuntil February1982 the nominalrate of exchangefirst set in 1979, in the face of inflationof 47X in 1980 aid 32% in 1981. Exports other than naturalgas were hurt. The growinginflation led to ever lower levelsof real tax revenues,while total publicsector expenditures rose in real terms. This, in turn, led to an even more rapid rate of inflation,an increasinglyover-valued exchange rate, and lowerexports. The lower exportsled to a higher currentaccount deficit, which increasedthe debt and hence the interestdue, and hence the size of the currentaccount deficitin the next period if all else were equal. The inflationalso led to great distortionsin the markets for foreignexchange and for credit, where a favoredfew who were grantedaccess to the foreignexchange or creditat officialrates couldcreate fortunes,literally overnight. But the gains for the few were at the expenseof the many. The increasing instabilityalso meant that the gains, once obtained,were storedabroad throughcapital flight. 15. Facedwith this set of problems,the new governmentof Paz Estenssoroinstituted a programunprecedented in its breadthwithin a few weeks of takingoffice. It was recognizedthat it would be impossibleto deal with one problem,the exchangerate for example,without dealing with all of the others simultaneously.It was also recognizedby the general populationthat drasticmeasures would be required,including fundamental structuralreforms. With the completebreakdown of order, Bolivia's populacewas willingto acceptmeasures which would have been politically impossibleelsewhere. ChapterII below will describethe contentof the programand its immediateeffects. - 10 - CHAPTER2 The New EconomicPolicy I. ProgramConception and Obje2tives 16. The unprecedentedsocial and econo,micdeterioration through which the countrywas going at the end of the Siles administrationled the new Government'sEconomic Team to the conclusionthat Bolivia'sold developmentpattern was no longerviable. Instead,in order to achieve sustainablegrowth in the mediumterm it would be necessarynot only to stabilizethe economy,but also to changeits historicaldevelopment pattern. In the Government'sview the economywould have to move from a patterncharacterized by a large share of publicsector activityand widespreadGovernment intervention and controlsto one based on private sector activityas guided by marketmechanisms, with the public sector providinga policyframework of stabilityand the requiredeconomic and social services.Moreover, stabilization and structuralchange had to be introducedsimultaneously. 17. The immediateproblem confronting the new Governmentupon taking office on August 6, 1985 was to regaincontrol of economicpolicy. This, in turn, requiredstopping the hyperinflationaryprocess which had practicallyeliminated the price systemas a guide for the allocationof resourcesand had made speculationmore profitablethan production. 8. In the Government'sview successin stoppinginflation required attackingdirectly and without delay the factorscausing it, so that fundamentalcorrections would accompanya reversalof inflationary expectations.It was also necessaryto have a comprehensiveand coherent program,with a set of mutuallysupportive measures to both stabilizethe system as well as restructureincentives. The main sourcesof inflation were seen to be the size of the fiscaldeficit and a systemof relative prices (particularlythe officialexchange and real interestrates) which were grosslydistorted. In the future,government expenditures and monetaryexpansion were to be backed by real resources: tax revenuesor foreignfinance. There would also be an immediateshift to realisticand sustainablelevels for the exchangerate, interestrates, and pricesset by the Government(such as for utilities). Other hyperinflationary experienceshad suggestedthat once monetaryexpansion was broughtunder controland the exchangerate was stabilized,price increaseswould end abruptly. 19. While stabilitywas seen as a necessarycondition for renewed growth,it was not consideredto be sufficient. In addition,the historicalreliance of economicactivity on governmentparticipation and controlswas to be reversed. The previouseconomic system was seen as incapableof generatingthe savingsand investmentsrequired for growth, and the economicstructure generated by old policiesdid not respondto the country'sresource endowment. The economicprogram (termed the New EconomicPolicy, or NEP) would, therefore,involve revamping the incentives systemand the role of the publicsector. Economicactivity was to be guidedby marketmechanisms in an environmentof transparentand stable - 11 - economicpolicies. The Governmentwould limit itself to providingrequired socialand economicpublic services. Governmentactivities in the productivesectors would be limitedto the joint developmentwith the privatesector of some well-selected,large-scale projects involving naturalresources (tin, other minerals,oil), which exceededthe financial and technicalcapabilities of the privatesector alone. The extensiveset of intermediationand controlmechanisms were to be rapidlyremoved. The stabilizationprogram would providethe base for a medium-termstructural reformprocess which would transformthe countryinto a more diversified economywith an efficientpublic sectorand a growingprivate sector. II. Program Content 20. The conception,objectives and core measuresof the NEP are stated in SupremeDecree 21060, issuedon August 29, 1985, only three weeks after the Governmentof Victor Paz Estenssorotook office. While S.D. 21060 was comprehensive,covering a wide range of policyareas, since its issue severaladditional measures have complemented,developed or clarified21060 accordingto implementationexperience and as needs have developed. Moreover,during this period some exogenousdevelopments have negatively affectedthe assumptionsupon which the NEP was based. The collapseof the tin market,the fall in the price of oil in the internationalmarket and, more recently,the actionsagainst cocaine trade have had profoundeffects on the prospectsfor achievinga rapid economicrecovery.8/ The economic programhas had to be adjustedto reflectthese developments.A summaryof the programand the status of implementationis shown in Table 2.1. Access to Foreign Exchangeand Determinationof the ForeignExchange Rate 21. Accordingto the new policyapproach the externalsector was liberalized,the paralleland the officialexchange rates were in essence unified,and a market-orientedadjustment mechanism through an auction systemfor foreignexchange (a Bolsin)was established.The immediate effectwas a 93% devaluationin the officialrate, from the previous69,500 per US$ rate to slightlyover 1,000,000. Controlson imports,exports, and other foreignexchange transactions were lifted. Export licensinghad previouslybeen requiredfor most agriculturalproducts (beef, corn, rice, soybeans,etc.), and some exportsof unprocessedgoods (wool)had been prohibited. Similarly,imports had been subjectto prohibitionsand, accordingto categories,to increasinglyrestrictive licensing requirements.These were removedalthough a few exceptionshave been reintroducedin responseto pressuresfrom specialinterest groups (rice, sugar). The same Decreeestablished free accessto the auctionsystem to anyonewith pesos, and all taxes and commissionson foreignexchange transactionswere eliminated. 8/ These developmentsare discussedin greaterdetail in ChapterIII below. page 1 of 2 Table 2.1: tET MM KODuIC s0.0, IMOIAM COETN AMDaSJUCTS )EASURE LEGAL INSTRUMENT/DATE OBJECTI ES STATUS External sector policies - Establishmentof an auction system for S.D. 21060, August 29, 1985 Elikinatelarge differential Exchangerate determinedthrough exchangerate determination. between official and parallel daily auctions. exchange rates. Differentialbetween official and Stabilizereal exchange rate, parallelrates bas been 22 or less since Febreary1986. - Import tariffs are set at a uniform S.D. 21367, August 19, 1986 Rationalizeexternal trade system. Affected sectors requesting 202. Facilitatefiscal revenue exemptionsor lower rates. coilections. Implementationproblems at Customs Administrationslevel. - Ex;ort tax rebate of 1O0. September1986 Compensateexporters for domestic Still to be implemented. taxes paid. Fiscal Policy - Financingceilings for public sector S.D. 21060, August 29, 1985 EliminateCentral sank financingo1 Expedituresbeing fin&acedonly to agencies. fiscal deficit. the extent allowed by revenues. - Limits on public sector salariesand S.D. 21060, August 29, 1985 Reduce fiscal deficit and public Expenditureson salariesare under employment. Incentivesfor S.D. 21137, November30, 1985 employment. control. relocalization. S.D. 21216, July 3, 1986 Reductionsin public employment. - thasing-outof payments in kind S.D. 21060, August 29, 1985 Reduce fiscal defict. Stores supplied on a coat basis. through subsidizedfood stores S.D. 21137, November30, 1985 (pulperias). S.D. 21216, July 3, 1986 - Increase in price of hydrocarbons. S.D. 21060, August 29, 1985 provide resourcesto public sector. Price of compositeoil liter 1986 Economic Program Fliminate major price distortion. maintainedat the equivalentof US$0.26. - Tax reform Law. Law No. 843, May 20, 1986. increase public sector revenues Implementation program being Rationalize tax system. prepared. Chapter on revaluation Reform of public Enterprises - Reform of COHIBOL. S.D. 21060, August 29, 1985 Rationalixeoperations and Implementationadvancing. S.D. 8/N, August 25, 1986 eliminateneed for public Negotiationwith miners underway. transfers. - Reform of YPPB. S.D. 21060, August 29, 1985. Bationaliseoperations. Being readjusted. - tissolution of CaP. S.D. 21060, August 29, 1985 Reduce Government's participation Meot assets bave been transfered to in directly productive activities. Departmental Corporations. - Lissolutionof ENTA. S.D. 21060, August 29, 1985 Reduce Government subsidies. Being reformulated. uinancialSector policies - rliminationof controls on interest S.D. 21060, August 29, 1985 Liberaliasionof the financial In place. rates and type of deposits. market. - Kestructuringof Central Bank. S.D. 21060, August 29, 1985 Return Central Bank to its proper Decree being prepared. role. page 2 of2 Table 2.1: mDLIQA: TIH NR ECOOMIOC POLICY. PROGRAMCOPTEET AND OBJECTVrEs WEASURE LEGAL INSTRUMENT/DATE OBJECTIVES STATUS - Monetary reform. Decree sent to the Congress for Strengthen confidence in national New monetary unit be approval. will the currency and facilitateaccounting. Boliviano, to be effective in January 1987. - RestructuringBAB. Under preparation. Establish an efficient financial Studies underway. institution to serve the agricultural sector. - Phasing-out of BE. Under preparation. Rationalizepublic sector finances. Studies underway. The Incentives Systet - prices of goods and services are S.D. 21060, August 29, 1985 To reduce price distortions and freed. in place. improve resource allocation. Exceptions: - Urban transport tariffs S.D. 21060, August 29, 1985 Provide urban transport at Under review. Were to be set by reasonable cost. municipalities. - Electricity tariffs. S.D. 21060, August 29, 1983 Provide a competitively priced Under review. Were to be set by service. municipalities for consumers and not to exceed 4-1h cente US per kilowatt hour for indusatrial use. - Telephone tariffs. S.D. 21060, August 29, 1985 Provide * competitively priced Under review. Internationalcalls service. tariffs were not to exceed those of connecting lines. - Railway tariffs. S.D. 21060, August 29, 1985 Provide a competitively priced Under review. Tariffs were not to service. exceed those of connecting lines. - Pharmaceuticalproducts. S.D. 21060, August 29, 1985 Prevent excessive costs to Mechanisms under study. consuners. - Private sector wages to be set by S.D. 21060, August 29, 1985 Reduce existing rigidities in the In place. Occasional exceptions. negotiations between labor and labor market. management. Make economy more competitive. - Number of monthly payments and S.D. 21060, August 29, 1985 improve efficiency of the economy. In holidays in a year reduced. place. Limits - on reduction of employment S.D. 21060, August 29, 1985. Reduce labor market rigidity. lifted. In place. - improvement of investment climate. Various Promote private, domestic and Investment code being revised. foreign investment. Country joined OPIC and MIGA. - Access to natural resources S.D. 21060, August 29, 1985 and Encourage investment and Restrictionson access to mining facilitated. other. development of resources. concessions partially lifted. - 14 - The System of Tariffs 22. Initially import tariffs were reduced to a flat 10% plus 10% of the previously existing tariff. More recently, on August 14, 1986, the system was simplified further by establishing a flat 20% tariff across the board. The new rate substitutes for all other fees and charges currently paid with the exception of a small fee (1.4%) to cover inspection services provided under contract by the Swiss company, Societe Generale de Surveillance. With the flat 20% tariff plus open access to foreign exchange, rates of effective protection are equalized across all sectors, which implies a massive reallignment of incentives relative to the previous, complicated system of both wide-ranging tariffs and quantitative controls. The introduction of a uniform tariff is also expected to increase revenues substantially over the prior system, which appears to have been collecting on average only 4-5% of the value of imports. The decision was adopted in spite of opposition from agriculturalists and industrialists who believed they would be hurt by higher tariffs on imports of inputs and machinery. The Government was also aware that under the previous system of tariffs, necessities theoretically paid a lower tariff than luxury items, and that the new system might therefore appear to be regressive. However, it was also recognized that due to malpractices made possible by the complicated nature of the previous system, its apparent progressivity was in fact lacking. In addition, luxury taxes on certain consumption items, then being prepared as part of the tax reform (discussed below) would bring some progressivity to the overall system. Th need for an enforceable instrument was an overriding consideration which argued for simplicity. On the export side, a 10% rebate on the value of all exports has been granted to compensate for the increased tariffs on imported inputs and machinery. In addition, Government plans to credit import duties against the 10% value added tax (IVA) when implemented. Fiscal Policy 23. The fiscal policy of the NEP involved two objectives: stabilization and long-term reform of the public sector. The key to stabilization was seen to be the elimination of the fiscal deficit as a source of monetary expansion. To achieve this, strong action was needed both to reduse expenditures and to increase revenues. 24. Public agencies had previously been functioning with little control and without budgets, financed almost fully by credit from the Central Bank or by the build-up of arrears, both foreign and domestic. Under the new Government, agencies were required to prepare budgets and until these were approved further Central Bank financing was prohibited. Later, even though for the first time in several years under the economic program for 1986 a public sector budget was prepared, expenditures were, in practice, financed only to the extent allowed by generation of revenues. Expenditures on wages were initially frozen and agencies were required to prepare programs for reduction of employment. S.D. 21060 established incentives for voluntary resignation of workers consisting of severance payments equivalent to three months salary if paid at once, or six months salary if paid over the same period, in addition to normal established social benefits. - 15 - 25. In November1985 Decree 21137 reviewingthe structureand levels of public sectorsalaries was issued. The objectiveswere to bring expenditureson wages in line with the financialcapacity of the Central Governmentand publicenterprises and to rationalizethe wage structure. The Decreeprovided for the consolidationof existingsalary bonuses into the basic salaryand the phasing-outof paymentsin kind throughsubsidized food stores(pulpgerias). Expenditures on salariesby agencywere to be frozenuntil May 1986 at the July 1985 nominallevels, plus 25%. In order to raise wages, an entitywould have to lay off workers. on July 3, 1986, a scaledsalary increase was granted,whereby the lowestpaid workerswould get a 33% increase,while those making more than $b300million (U.S. $150) per month would get no increase. Interpretationof this Decree,at the level of agencies,however, has turnedout to be loose,with severalof them grantingincreases that went beyond the set limitsand which threatenedthe fragilefiscal balance. As aq consequence,the Government's EconomicTeam decidedin August to tightenfurther control on wage expenditures.In particular,there would be a reviewof the salary increasesthat had been grantedand a rollbackof those that exceededlegal provisions.The payrollsof public sectoragencies in the futurewould be centrallymanaged by the Treasury. 26. On the revenueside the only sourcethat couldyield significant revenuesi-nediately was an adjustmentin the price of petroleumproducts. This was accomplishedby the sharp devaluationof the peso and the increaseof their domesticprices to internationallevels at the new exchange rate. The domestic price of gasoline was increased to the equivalent of US$0.30 per liter (implying an over ten-fold increase over the price in July). The increasein revenues(amounting to abot 10% of GDP) were then transferredto the CentralGovernment and has been the foundationof the stabilizationprogram. 27. The EconomicTeam expectedthat the devaluationwould have significantpositive effects on publicsector revenues. COMIBOLwould benefitdirectly from the higher exchangerate in terms of pesos from its mineralexports. Tax revenuesfrom internationaltrade were expectedto recuperatewith the returnof these operationsto regulartrade channels. The latterwould be aided by the reductionof tariffsand the rationalizationof mining taxationcontained in S.D. 21060. Taxes on mineralproduction were consolidatedand paymentsto be calculatedon presumedprofits, which take as referencethe internationalprice of minerals. The Governmentintends to reformmining taxationfurther as part of a completereview of the policiesof the sector. other revenue increaseswere expectedfrom the generalreturn of economicactivities to the formaleconomy as a resultof the eliminationof price and exchange rate controls. 28. There measures,however, were not expectedto be sufficientto restoretax revenuescompletely to levelsprior to the hyperinflation. The existingsystem had nearly collapsedas illustratedby the fact that tax revenueshad fallenfrom a peak of 11? of GDP in 1977-78 to less than 1% in 1985. Thus, in the springof 1986, a comprehensivetax reformlaw was introducedand approvedby the Congress. The new law introducesone temporaryand six permanenttaxes. The temporarymeasure is intendedto regularizepast tax dues and is a one-timetax on propertyowned by K -~~~~~~~~~16- ezterprises and individuals. If this tax is paid, all prior obligations on taxes d e up to December 31, 1985 would be forgiven. Pour tax categories tAreon income: (i) a 10% value added tax (VAT) on sales of all goods (expeptreal estate),servioes, and rent, with paymentsto be made monthly; ½i '~ (it) a 10% withholding tax on salaries, rents, dividends,inoome from literalprofessions, and inoomefrom royalties--againstwhioh VAT payments 'ka3'y.ededucted; (iii) 1% transactionstax; and (iv) 30 to 50% excise taxes on luxuryitems such as alcohol,jewelry and tobacco. Two categoriesof lta^es ar, on wealth: (i) a 2% tax on enterprise'snet worth; and (ii) tax o)4personal property at varying (progressive) rates but whieh is expected t avirage2-3%. The new tax law also speoifiesmajor improvementsin ,,pOforcementof tax obligations.Specific jail sentenceshave been introducedfor tax evasionand tax debts are to be designatedin US dollars -,to avoid incentivesfor late paymentshould inflation again become importqni. Interestrates on tax debts are also to be establishedat 4OaTet lvels. The designof tax reform also containsinteresting setf-enforcement mechanisms. For example, value-added taxes are often dtffioultto oollectin lees developedeountries since informa'.sector re1ta4lersmay simplyfail to reportall sales. However,by introducinga 10% w4thholdingtax on salaries of workers in the formalsector, but with full dOductibility for any VAT paymentsmade by the workersbecause of the 'purobhoes of goods, as evidenoed by receipts, the formal sector workers can be eipected to demand receipts for most or all of their expenditures. The Govearnmnt's objective is to collect a tax of olose to 10% of value-added, and it is largely indifferent whether this comes through true value-added taxes or through the withholding tax on salaries. ,J~,, 29. Intensive work with external assistance (UNDP, IDB, World Bank) is taking place on implementation of the tax reform. A detailed action program involving the design and installation of computing systems; registrationof taxpayers;support, monitoring and controlsystems; and publicity-forthe new systemhas been proposedand is under implementation.There are, however,areas where decisionshave yet to be adopted(administrative organization, timing) and which may delay implementation.Only the tax on revaluationof assetshas becomeeffective althogh the responseof the public to this tax, in terms of compliance, bas b*iensurprisingly good. The other taxes shouldbe phasedsequentially duringthe courseof 1987, but it is not now expectedthat the major generatorof tax revenues(the value-addedtax) will collectsubstantial revenuesbefore early 1988. To expediteimplementation and to improvetax ,o'llection the Government has been considering appointing a temporary PkAXinister with the sole responsibility of collecting all tax revenues. .;,*ter, when the tax oolLection system was functioning well, the Tax giniptry would be reabsorbed into Finance. "Itefom ,of Publitv Enterprises 30. Measuresaffecting public enterprisesaddress the short-term stabilizationobjective as well as the medium-termstructural reform objectives.Regarding stabilization, public enterprises were subjectto At 4khesame financialcontrols instituted by S.D. 21060 for publicagencies. In,¶articular, they would no longer have unlimited aceess to Central Bank eped*t. On the other hand, a number benefitted from the exchange rate adjustment, partioularly YPPB and CONIBOL. Regarding the medium-term, the :I ** 17 - objectivefor enterprisesengaged in directlyproductive activities was to rationalizeoperations to make them economicallyviable without recourse to subsidies. For enterprisesproviding services, the objectivewas to bring their efficiencyto a level that would allow those servicesto be competitivelypriced so that, in turn, Bolivianproducers would not be at a disadvantageto competeeffectively in domesticand externalmarkets. 31. S.D. 21060 stated that COMIBOLwould be reorganized,broken down into four subsidiaries.The objectivewas to rationalizeits operationsby requiringsubstantial reductions of employmentand prohibitingsubsidized food stores. The collapseof the tin market in October,1985, which broughtthe price down by more than half, complicatedthe task. An even largerthan originallyenvisaged number of highlyvocal and visibleworkers would have to be laid off. Employmentwas subsequentlyreduced from 27,000 in Januaryto 19,700 in August 1986,and monthlydeficits reduced from US$9 million at the beginningof 1986 to US$3-4million by June. Some of this improvement,however, has been based on ad hoc measuresand may be more apparentthan real. For example,of the US$6 millionreduction in COMIBOL'smonthly deficit, about half may be due to a shift to the GovernmentTreasury of certainsocial expenses previously covered by COMIBOL. 32. on August 25, 1986 a new Decreeto restructureCOMIBOL was issued. It establishedthe breakingup of COMIBOLinto independent entities,which are authorizedto closemines that are uneconomic;stop productionin but maintainmines that could be exploitedif pricesimprove; lease out to cooperatives(formed by currentworkers) those mines that are only marginallyviable, and continueproduction at profitableones. The Decree also establishedthat the smeltersof ENAF and Karachipampawould be autonomouslymanaged. Thereare severalprovisions for technicaland creditassistance to the cooperativesto be formed,but subsidiesare explicitlyruled out. Severalof the provisionsin the Decreeare in line with recommendationsmade by the World Bank withina technicalassistance programbeing undertakenin collaborationwith UNDP. The imminentclosure of mines and the consequentloss of employmentfor a largenumber of workers,however, has generatedstrong opposition from the unions. The Governmentis now negotiatingwith the minerson establishingcomplementary programswhich could alleviatethe impactof a massive loss of employment. 33. S.D. 2106D also providedfor the reorganizationof YPFB by breakingit into three subsidiaries,two for explorationand productionand one for processingand marketingof hydrocarbons.However, on a more carefulstudy of YPFB's situation,it was recognizedby the Governmentthat some of the provisionswould be inadequate.With technicalassistance from the World Bank and UNDP, an alternativereorganization plan is now being prepared. The objectivesof the reorganizationunder study include improvingefficiency, streamlining the organizationalstructure, reduction of personneland developingan investmentprogram consistent with the country'sfinancial resources. The latterare constrainingYPFB's investmentprogram because of the key role that the revenuesgenerated by YPFB are playingin the Government'sstabilization efforts. 34. Finally,S.D. 21060 establishedthe dissolutionof the Bolivian DevelopmentCorporation (CBF) and the NationalTransport Enterprise 18 - (ENTA). All CBF's enterprises erngaged in productive activities have been transferred to Bolivia's Regional Development Agencies, which are currently running them with varying degrees of success. Their activities include milk processing, soybean processing plants, sugar production, glass, textiles, cement and others. It is not clear what degree of fundamental success will be achieved because immediate results are influenced by the fact the transfer involved only assets, while liabilities were assumed by the Treasury. In addition, the Regional Development Agencies differ widely in their degree of financial and technical expertise. The same applies to the municipalities running the bus systems transferred from ENTA. Financial Sector Policies 35. Consistent with the new Government policy approach the NEP liberalizes the financial sector by freeing interest rates and in general removing restrictions on financial transactions (for example on indexed deposits). Liberalization, however, came when the role of the financial system in the investment/savings process had been reduced by the hyperinflationary process which, for example, resulted in a monetary base that had shrunk from the equivalent of US$561 million in 1980 to US$71million in August 1985. The sharp shrinkage of monetary assets has led to a banking system which faces extremely high administrative costs relative to the size of loans outstanding. The banking system had also been affected by the 1982 "dedollarization" which had required the commercial banks to accept repayment of U.S. dollar denominated loans at the then highly overvalued official exchange rate. The external dollar obligations of the banks were also to be assumed by the Central Bank upon being paid in Bolivian pesos by the banks, whereupon the Central Bank would discharge the dollar obligation. However, the latter was not done. The weakened financial position of the banking system was exacerbated by some effects of the stabilization program. Support from Central Bank financing was reduced as part of the tight monetary policy and the abrupt end of hyperinflation resulted in high real interest rates; over time, this will affect the solvency of the banks' borrowers, and hence the quality of the portfolio of the banks. Financial sector reform and restructuring therefore remains a priority. To this end, the Government is following up on the restructuring of the Central Bank to have it assume its proper role of monetary authority by strengthening its supervision and control of the banking system, the process by which monetary policy is conducted, and its management of foreign reserves. The goal is to move the Central Bank away from its de facto current roles of commercial bank for public enterprises, and development bank involved in the detailed evaluation and approval of individual loans. 36. In an effort to strengthen confidence in the newly gained stability of the national currency (tie para. 41) and to simplify transactions and accountingt the Government has also sent to Congress a draft bill providing for the establishment of a new monetary unit--the Boliviano--which will be equivalent to 1,000,000 pesos and which would become effective in January 1987. 37. Preparations are underway to address problems facing the two largest public sector banks: Banco Agricola de Bolivia (BAB) and Banco del Estado (BE). These two development banks face extreme collection problems 19 - and operational weaknesses which have resulted in severe finaneial drains. Their problems also mean there is nOw no effeotive channel for publie sectorcredit 'or agricultural, industrial and commercial lending. Several restructuringoptions are under considerationinoluding the possibilityof closure. Servicesin rural areas,such as those the Banco Agrioolashould provide, are necessary, and thus it is likely that the Banco Agricolawill survive in some form. The need for the Banco del Estado, in contrast,is less clear. The IncentivesSystem 38. Probablythe most fundamentalpart of the reformsis the goal of replacingthe previousincentive system based on interventionist, erratic,and privilegedallocation concepts, where each sectoror group expectedits progressto be based on specialconcessions or favors. The new goal is insteadto have a stable,market-oriented system of incentives whioh promotescompetitiveness and efficiency. To this end, the unificationof the foreignexchange market, the flat 20% tariffwith a 10% exportrebate, the eliminationof quantitativerestriction on foreign trade, the liftingof controlson interestrates, and the other liberalisationmeasures in the externaland financialsectors, discussed above,have been complementedwith the liberalizationcf the goods and labor markets. The extensiveprice controlsaffecting mainly agrioultural goods have been eliminated.Restrictions on mineral exploration areas have been partiallyremoved as have restriotionson profitremittances or access of foreigninvestors to Bolivia'snatural resources. Furthermore,the Governmentis activelyseeking foreign investment and has joinedMIGA and OPIC to prov'.defurther guarantees to foreigninvestment. A reviewof Bolivia'sinvestment laws as well as the mining code is underway. Determinationof privatesalaries (except the minimumwage) has been left to negotiationsbetween labor and management,and legal restrictionson the firingof privateand publicsector personnel have been removed. The number of monthlypayments in a year have been reducedfrom up to 18 to 12 plus a Christmas allowance while paid holidays have been reduced to a maximumof ten days. By and large,these measures are in place even though in some cases they need to be strengthened.For example,a 1937 law which prohibitsfiring of bank employeeshas been succesafullyu^sed in the courts to challengethe new rules. 39. The Governmentmust still set pricesfor goods or serviceswhich, by their nature,cannot be marketdetermined such as the servicesof public utilities. The statedintention of S.D. 21060 was that serviceswhich are part of productioncosts (electricity,railroad, and telephones)would be priced at levelsno higher than in neighboringcountries. Electricity would not exceed4-1/2 US cents per kilowatt-hour,and telephoneand railroadtariff were not to exceedtariffs charged by connectinglines. However,these changeshave not been fully implemented.The comparators did not reflectcomparable situations because their tariffsincluded subsidies. In addition,the neededimprovements in efficiencywithin the enterpriseswould take time to complete. Until then, lower priceswould imply subsidiesfrom the generalgovernment treasury. Currently,tariffs at the nationalrailway company INFEand at the nationalelectric company ENDE are being reviewed. Pricesof pharmaceutioalproducts are to be regulated by the Ministry of Health. - 20 - III. ProgramResults 40. A year after launching,the NEP has achievedmost of its initial goals. The hyperinflationhas essentiallybeen controlledand the exchange rate has remainedrelatively stable. The spreadwith the parallelmarket has disappeared(Table 1.4). Followingthe eliminationof price controls and the initial93% devaluationin September1985 (whichwas followedby price adjustments),the rate of domesticprice increasesdropped sharply in October(when it was negative)and November. The figuresare shown in Table 1.3 of ChapterI. The increasein revenuesof the Treasuryand controlof expenditureshas resultedin a cash surplus. Credit to the public sectorhas fallenin re'l terms,and the rate of monetaryemission has slowed down sharply. Net '.oreignexchange reserves have increasedfrom US$40 million in August1985 to US$240million in October1986. The trend is clearlyto stabilityas accumulatedinflation during the secondquarter of 1986 was 9.1%, comparedto 43.1% during the first quarter. 41. Revenuesof the Treasury,after the dramaticincrease from the equivalentof US$5.7million in Septemberof 1985 to US$45.5million in October,have since averaged(but with wide fluctuations)about US$30 millionper month. While all revenuecategories have increased,revenues stemmingfrom YPFB's sales of gas and petroleumproducts have been the most important. Close to 70% of the revenuesof the Treasuryduring the January-June1986 periodwere from YPFB. The other two main sourcesof revenueshave been internaltaxes (which includepersonal and corporate incometaxes, taxes on tobaccoproducts, and taxes on alcoholicbeverages), and taxes on internationaltrade. Revenuesfrom these sourcesincreased by multipleof five (internaltax) and ten (on internationaltrade), but remainmuch below levelsachieved in the 1970s,before the hyperinflation. Nevertheless,the change in CentralGovernment finances can be illustrated by the fact that total revenuesof the Treasurycovered only 15X of current expendituresin the first semesterof 1985 while they were 135% of current expendituresduring the same period in 1986. Public enterpriseshave also improvedsubstantially their liquidityposition, which is reflectedin the attainmentof a cash flow surplusof about US$29 millionfor the first semesterof 1986. These improvementsoriginate in the exchangerate adjustment,strict control of currentand investmentexpenditures, but also some accumulationof arrears. 42. The fragilityof these achievements,however, were illustratedby a serioussetback in Decemberand Januarywhen prices increasedby 16.8% and 33.0% respectively.This resultedfrom an over 50% expansionof the money stock in December1985 which in turn stemmedfrov 1 a relaxationof expenditurecontrol in the public sector'an attemptto pay arrearsthat had accumulated,and an expansionof creditto agriculture.The peso depreciatedrapidly in the parallelmarket from $bl.6million per US$ in mid-Decemberto $b2.8 million in mid-January. The rapid impactof monetary expansionon pricesand the exchangerate reflectedthe underlying inflationaryexpectations that remainedlatent. In order to regain confidenceand after a reshufflein the Cabinetin January,the Government adopteda seriesof measureswhich included(i) a drastichalt of public sectorexpenditures by freezingthe accountsof publicsector agencies (therebylimiting their spendingto their abilityto collectrevenues and by deferringpayment of obligations),(ii) steppedup sales of foreign exchangein the bolsinand (iii) restrictingthe publicsector's access to - 21 - that market. Thesemeasures succeeded in reducingthe previousmonetary expansion,reversing the depreciationof the peso and stabilizingthe price level. 43. Althoughthere are few reliableindicators of economicactivity, expectationsare that GDP will fall by about32 in 1986. Boliviasuffered from the effectsof the collapseof the internationaltin market in October 1985, the fall in the internationalpetroleum price in early 1986 (and hence in the price of its naturalgas), and the U.S.-supportedinterdiction of cocaineproduction in July 1986.9/ Given these shocksas well as the requiredseverity of the stabilizationprogram, a 32 declinein GDP should not be surprising. 44. Preliminarydata for Januaryto July 1986 on externaltrade indicatethat importsof goods have increasedby 821 and exportsby 372 in relationto the same period last year. The increasein importsappears to. be mostly of consumptiongoods and a resultof the removalof quantitative restrictionson such imports. There does not appearto be any evidenceof a supply side effecton output of the increasedavailability of imports, which could have resultedfrom an increasedavailability of importedinputs and spareparts. The lattermay have been availablebefore through the blackmarket. The increasein the value of mineralexports reflects an even larger increasein volume since all pricesof Bolivia'smajor mineral exportsfell during1986 (with the exceptionof lead which remained constant). There is some evidence,however, that an importantshare of the increasein these exportsresulted from the destockingof minerals, includingsale of stocksoriginally built up for the Karachipampa processingplant which is now unlikelyto operatesoon. Exportsof hydrocarbonsare below the 1985 level in revenueterms because of a 12% reductionin the priceof naturalgas exports. Exportsof non-traditional goods show the largestincrease (US$47.3 million in Januaryto July 1986 vs. US$10 million in the same periodof 1985). Part of this increase apparentlyresults from a shift to legalchannels of goods previously smuggledin responseto the unificationof the exchangerate. 45. There are few other indicationsof recoverybut the economyseems to have reached bottom, and there is some reason for optimism. Since February1986, pricesand the exchangerate have remainedremarkably stableand are boostingconfidence in the successof the economicprogram. The smooth functioningof the auctionsystem has also bolstered confidence. The supplyof foreignexchange by the CentralBank has been more than adequateto meet the demand,and, nonetheless,official reserves have been re-builtsubstantially. During the first semesterof 1986 the demandat the bolsinhas been, on average,only about1/3 of the amounts offeredeach day. Fluctuationsin the exchangerate have been minimal,and the spreadwith the parallelmarket exchangerate has on averageremained below 1%. Net internationalreserves have increasedfrom US$40million in July of 1985 to over US$260million a year later,although these include $80 million accumulatedfrom naturalgas sales to Argentinawhich are restrictedto the purchaseof Argentinegoods. 9/ These are discussedin greaterdetail in Chapter ITI. - 22 - 46. The increasedconfidence in the programis also reflectedin the steadydecline in interestrates. BetweenJanuary and June of 1986, peso lendingrates have fallenfrom 20% a month to 8% and interestrates on depositshave fallenfrom 10 1/2% to 4%. These are still high in real terms,and can in part be ascribedto continuedinflationary expectations. Depositsin the bankingsystem have also increasedfrom the equivalentof US$47 million in December1985 to US$200million in September1986, and there is a slow but steadyincrease in the amount of pesos held by the public. 47, Prices in real terms for the main agriculturalproducts have substantiallyincreased as a resultof the freeingof pricesand the devaluation. There are alreadyseveral signs of responsein the sector, includingthe first experimentalexport of soybeansto Europe (20,000 tons). On the other hand, both the agriculturaland industrialsectors have had to adjustto interestrates that are no longernegative in real terms and to the higherprices of petroleumproducts. 48. Major problemsremain. The financialposition of the public sectorremains extremely weak and until the Tax Reformis fully implemented,revenues will lag. This will impedea recuperationof investmentexpenditures including those financedfrom externalsources due to lack of counterpartfunds. Concernhas also been expressedby agriculturaland industrialexporters about the level of the exchange rate. Interestrates also remainvery high in real terms. Finally,a major problemwhich casts doubtson the eventualsuccess of the programis that of employment. The necessarymajor reductionof employmentat COMIBOL,other publicenterprises and the CentralAdministration is an importantpolitical and socialproblem. IV. Areas Where FurtherEfforts Are Required 49. The policiesbeing formulatedat the macro economiclevel are close to the ideal for stabilizationgoals. Their full implementation, however,is provingto be difficult. Part of the problemis the serious shortageof capablemiddle-level managers and technicalstaff to carry out the reformscontemplated in the program. The few qualifiedmanagers in the publicsector are alreadyfully occupiedin mappingstrategies and day-to-daydefense of the economicprogram. The situationis complicated by the fact that, in additionto oppositionfrom groupsnegatively affected by the reforms,even economicagents who will benefit from the improved growth prospectshave yet to acceptand respondto the fundamentalchange in the directionof the economicpolicy that the NEP implies. They still expectthat their activitiesshould be directlysupported by the Government. 50. The momentumfor reformshould be maintainedby expeditious implementationof the reformsalready issued:the tax, monetary,and tariff reforms. Public financesremain weak and dependenton the revenuesfrom YPFB. Revenuesand expendituresof the CentralsGovernment are runningat less than half of budgetedamounts, and an accountingbalance is maintained only by a sharp reductionof expenditures,particularly of investments. Lack of counterpartfunds is constrainingthe use of externalfunds for executionof projectsalready approved. The returnsin terms of reactivatingthe economyfrom increasedtax collectionswould be multiplied - 23 - by the additionalinflows of foreignexchange. YPFB's total transfersto the CentralGovernment and the regionaldevelopment agencies exceed 75% of its revenuesand, consequently,the companydoes not have the resourcesto carry out its investmentprogram. However,until the tax reformbegins to yield revenues,there is littlealternative for the Governmentto YPFB continuingto financethe Treasury. 51. Effortshave to be made also to implementeffectively the tariff reform. The experiencewith the originalreform introducedby S.D. 21060 was not encouraging.Malpractices at the CustomsAdministration resulted iu de facto tariffsand importcosts way over those intendedalthough not accruingto the Government. Modalitiesto avoid compliancewith the tariff provisionswere to increaseexisting fees, setting"minimum reference prices'over actual pricesas the basis to calculateamounts to be paid, and Inclusionof administrativecharges. However, the introductionof the flat 20% tariffplus the contractwith SGS shouldimprove performance. 52. Given the tight financialconstraints, it is also imperativeto continuewith the reformsat the publicenterprises. In particular, resolutionof the financialproblems of COMIBOLcontinues to be vital for the successof the economicprogram as the Governmentdoes not have the resourcesto financethe underlyingdeficits in COMIBOL'saccounts. 53. The resourceconstraints and the fragilityof the stabilization imply the need to monitorclosely the fiscalaccounts and their impacton monetaryvariables and the externalsector. Incompleteor untimely Informationaffects the capacityof the Government'sEconomic Team to respondrapidly to new developments.For example,in mid-1986there were reductionsin internationalreserves which were not accompaniedby a concommitantfall in the money supply. The problemwas later tracedto incomplete accounting of external debt payments on behalf of public enterprises, which did not surrender the necessary pesos to the Central Bank. In a broaderperspective, it is necessary to improve the data base for the NationalAccounts and the Balanceof Payments. Currently,there are no timelyand reliableindicators of the evolutionof production, investmentand externaltrade. 54. The problemsof the financialsystem need to be addressed. Policiesregarding the bankingsystem need to be improvedin several areas:reserve requirements should be rationalized(they are too high for checking accounts and are skewed against deposits in pesos),the problemof dollarization needs to be resolved, and the financial capacity of the banks needs to be strengthened. While the Government does not have the resources nor would it be desirable to bail out banks that are facing insolvency problems,preventive actions need to be adopted since bank failures affectingdepositors would shake the confidencein the programjust when it is being regained. High interestrates requiredto cover the high administrativecosts of banks are a major factorin the continuationof the recesslon. 55. Resuming growth will require substantial investment resources to developthe country'shuman and economicpotential. After severalyears of economicdecline, both the publicand privatesectors have only a limited - 24 - capacityto generatethem. To enhancethis capacity,the Governmentwill have to betterdefine sector strategiesand investmentpriorities. This should involvea strictscreening of publicsector investment projects, includingthose in execution,or about to be executed,and which have alreadybeen financed. Resourcesmust be ch -eled only to projectswith high returnsand short maturityperiods. Projectswhich contribute directlyor indirectlyto improvingthe balanceof paymentswill remaina priority. 56. The processof clarifyingsector strategiesinitiated by the Government in August 1986 should be pursued. A key elementin the redefinition of sectorstrategies and investmentprograms will be ai clear delineation of the respective roles of the publicand privatesectors and specifically, a continuingcommitment to the Government'sexplicit policy of not substitutingprivate investment in the productivesectors. Investmentprograms should take explicitaccount of infrastructureand public servicesrequired to supportprivate sector development and Investment. In this sense,demands for subsidiesor specialtreatment of sectors or regions should continue to be disallowed. 57. At the present juncture, even the best of policiesmay prove insufficientin themselvesto attractthe privatesector investments requiredto reactivatethe economy. Marketmechanisms may not adequately take into accountthe differencesin risk from an individualversus a socialpoint of view. There is a vicious circle that makes it expensiveto invest because of the great risks, which are in turn exacerbatedby the low levels of investment. A recoveryin public sectorinvestment, supported by concessionalexternal resources, will be necessaryto break this circle. - 25 - CHAPTER3 Medium-termProspeets I. Introduotion 58. The polioyprogram enacted by the Pa8 Governmentsinoe it took offioein August 1985 suoceededin stabilizingthe economy. However,the problems Boliviafaces with the externalaocounts over the medium-termare structural,and the enormityof the task it faces is such that suocesswill requiregreat efforts,particularly in the implementationof the intended reformas.A continuationof the progressachieved over the last year by the Government on a whole range of measureswill be required,as will further assistance on the part of Bolivia's creditors in providing capital inflows on conoessionalterms and extendedresohedulings of currentdebt service obligations. 59. Boliviafaces two particularlyimportant structural diffioulties for its external accounts; one is the size of its current external debt obligations, and the other is the structure of its exports. Bolivia's total external debt at the end of 1985 was US$3.9 billion, or 104% of its CDP and 524% of its exportsof goods and services. These are among the highest suoh ratios for any country in Latin America, yet Bolivia is one of the poorest. The interest on this debt was accruing at 8*9% of GDP in 1985, although most of this interest was not paid. The current account was in deficit at a level of 9.2% of GDP even thoughthe trade balance(in goods and non-factor services) was in surplue of 1.3% of GDP. This enormous debt was incurred in the 1970s but was not, in general, used productively.Instead, it financed questionable projects which showed little return, and capital flight.LO/ Rather than having completed, productive, projects to provide the resources to repay the debt ineurred, Bolivia has instead had to constrict legal imports and build-up arrears. 60. The structure of Bolivia's exports also leads to difficulties. First, legal exports are extremely concentrated in two goods: natural gas and tin. In 1985, of Bolivia's legal exports of goods,60% was natural gas and 30% was tin, or 90% for only these two goods.11/ Second, both of these goods face problems brought on by external events over the past year. First, the international market for tin collapsed in October 1985. Trading ceased on the London Metal Exobange after the International Tin Council, which had kept prices stable in the 1980s, announced it had run out of funds to cover purchases it had contracted for on margin. Effective tin prices as of August 1986 were less than half of what they had been a year earlier. Second, the reduction in the international price of petroleum from an average of $28 per barrel in 1985 to a range of US$8-16 10/ For further discussion, see World Bank, Economio Memorandumon Bolivia, Report No. 5680-BO, August 2, 1985. 11/ If exports of non-factor services are added in, the proportions are 52% gas and 26% tin. - 26 - per barrel for most of 1986, reducedthe value to Argentinaof Bolivia's naturalgas exports. 61. Bolivia'snatural gas exportsare exolusivelyto Argentina througha pipelinecompleted in 1972 and under terms of a 20-yearcontract coveringthe period to 1992. The price for the gas has come to be negotiatedon an annualor semi-annualbasis, and these negotiationshave becomeincreasingly difficult for Bolivia. In additionto the problems oreatedby the collapsein oil prices,Argentina has also in recentyears developedits own suppliesof gas and no longerhas a globalrequirement for the Boliviangas. Althoughit continuesto import the volumeof gas as specifiedunder the terms of the 1972 contract,12/ the level of imports likelyfrom 1992 onwardsis quite uncertain. Continuationof the purchases,and on what terms,will be based on more than purelyeconomic considerations.In the short term, the prioe issue is likelyto dominate. At the April 1986 negotiations,the price of the gas was reducedby 12% from its 1985 levels,with effectfrom January1. The new price of US$4.22 per thousandcubic feet 13/ is, however,still equivalentto about US$22-US$23per barrelof oil on energyequivalent terms. Takinga world price of oil of US$15 per barrelas the basis for comparison,the current gas price is 50% higher. Partiallyoffsetting this is the requirementthat part of the gas be paid by Argentinanot in freely convertibleforeign exchange,but in terms of Argentinegoods on a countertradebasis. Until Boliviadecides which Argentinegoods to purchase,the gas receiptswhich must be dedicatedto countertradeac¢umulate without interest in a special account at the Avgentine Central BDwak.Because of these countertrade restrictions, it cannot be said that Bolivia, in fact, receives a full US$1 of value for US$1 of recorded gas exports. The appropriate discount is not clear. However, even with this taken into account, it is likely Argentina will continue to push for lower gas prices. Given Bolivia's dependence on gas exports, with 60% of its merchandiseexports being this one commodity to this one customer,Bolivia can ill afford a major reduction. 62. Bolivia'sexports suffered a third major shock in 1986 when a Government-sponsoredeffort led to the closureof some of Bolivia's clandestinecocaine processing laboratories. The long-termeffectiveness of these interdictionsis not yet clear,although the currentgovernment clearlyintends to do whateveris possibleto ensuretheir success. The extentof the illegaltrade is also not clear,but estimatesof its scale range to amountsof severaltimes Bolivia's total legal exports. Although this would be the amount accruing to Bolivian residentsl 4 /, perhaps more economically relevant is the estimate of what amount iB brought back to Bolivia to cover local costs as well as the living standards of the 12/ As subsequentlyamended in the late 1970s, when the volume was increased. 13/ US$3.70for the dry gas, and US$0.52 for the associatedpetroleum liquids. t4/ And not, for example,the "retail"value in the US of what is produced, which would be far more. - 27 - processors. In any case, a significant reduction in this trade resulting from the interdiction and other eradication efforts will have significant economic repercussions. The effects may not be so much reflected in pressure on the official foreign exchange market since although there will be fewer black market dollars to provide for smuggled imports, there will also be less demand for the imports due to a reduction in incomes. Rather, the effects are likely to be reflected in a sharp fall in living standards of those employed, Uirectly or indirectly, in the coca trade. These include small-scale farmers and those employed in transport and other support services to the trade. This will exacerbate an already acute unemployment situation. 63. Thus, Bolivia faces major structural problems over the medium-term. Although the focus of the discussion in this chapter will lie on the likely balance of payments, this is not to belittle the other problems Bolivia will have to face. However, to the extent external assistance will be provided through the provision of loans or debt relief, a necessary first step is to determine whether the balance of payments will be viable through the medium-term. This chapter therefore reviews in some detail projections of the balance of payments and, in particular, presents in detail the assumptions underlying these projections. The projected base-line scenario is based on what is believed to be likely given the government's current set of policies, and given what is understood to be the plans of external creditors plus certain assumptions as to rescheduling of current obligations. The financing scenario is consistent, but it is of course still quite uncertain as it depends on finaldecisions which have yet to be made, including on Bolivia's own public investment program. 64. The basic result that comes out of the projections is that through extraordinary measures, detailed below, on the part of both Bolivia and its creditors, a consistent balance of payments with a zero financing gap is possible through the end of this decade. However, the continuation of such efforts would not suffice in the 1990s, when a large unfinanced gap opens up and widens to levels over US$500 million per year by the middle of the decade. The gap first arises in a major way in 1990 when amortization payments under the 1986 Paris Club rescheduling start to become due, and widens in 1992 when it is assumed natural gas exports to Argentina are cut back by half. 15! Standard measures such as the ratios of external debt to GDPand of debt service to exporters worsen over the period. This suggests that Bolivia is facing more of a solvency problem rather than a liquidity problem, and that even stronger efforts will be required to overcome it. Therewill be a need for an even stronger push on exports and further extraordinary financing measures. Consideration will have to be given to a possible rescheduling of previously rescheduled debt, to greater concessionality in new debt incurred, and perhaps to a recognition that some of the debt obtained and misused in the 1970s may have to remain unpaid. A specific scenario which details a combination of measures 15J The specific assumptions are discussed in detail below. - 28 - which togetherwould sufficeto overcomethe financingdifficulties of the 1990swill be discussedbelow. Comparedto the base-linescenario, the measuresinvolve higher levelsof investmentbeginning in 1988 followedby more rapid growthin exportsbeginning in 1989-90,somewhat higher levels of externalassistance, and extraordinarydebt reliefmeasures. The scenarioexplicitly does not assume the completiono} any mega-projectsuch as the proposedgas pipelineto Brazil,which might by itself lead to a quantumjump in exportrevenues. Rather,emphasis is placedon a seriesof small measures,each being insignificantby itself,but which togetheradd up to what will be requiredto achievesustainable growth with a diversifiedbasket of exports,resilient to futureexternal shocks. The scenarioaddresses the question:"what would be necessary",rather than "what would be likely,given currentpolicies and plans." However,the scenariodoes show one possibleresolution to the problems. If achieved, the scenarioalso indicatesthat standardmeasures of indebtednesssuch as the debt serviceand the debt to exportsratios will be much improved,and on a viable long-termpath. The criticalproblem, therefore, is a long-termone ratherthan one of the near-term. It is importantnot to be complacentif near-termbalance of paymentsprojections indicate the financinggap is closedfor a few years. Rather,it is importantthat the Governmentand its externalcreditors make use of this breathingspace, which has been hard won, to developand then executewell thoughtthrough plans to deal with the difficultiesforeseen for the 1990n. New public irvestmentprojects must be formulatedwith these long-termissues in mind, and the processmust begin now, with the aim that a coherentlong-term strategybe ready withinabout a year. II. Growthof Exports,Imports, and the DomesticDemand Aggregates Exports 65. Table 3.1 summarizesthe export assumptions.Although shown in terms of five-yeargrowth rates,the underlyingfigures were projectedon a year-by-yearbasis. The projectionswere based on the currentplans (but adjustedin some cases to be more realistic)of COMIBOL,of YPFB, and of privatemineral producers. It was assumedthere would be a major response by all exportsother than tin and naturalgas to the 1985 realignmentof the exchangerate.16/ However,as these goods accountedfor only about one-fifthof total exportsof goods and non-factorservices in 1985, even a rapid rate of growthin such goods does not sufficeto make up for the losses in tin and gas for severalyears. In addition,the pricesof most of the metalsother than tin that Boliviaexports are also depressedin 1986, and are not projectedto recoverfor a numberof years. Tin is expectedto remainparticularly depressed for severalyears becauseof the October 1985 collapsein the market. Prices are not expectedto begin to recoveruntil 1988, and then only partially,with the nominal 1985 level not reacheduntil after 1995. 16/ And there appearsto be evidenceof this In the preliminaryfigures for the first half of 1986. Table 3.1: GROWTH OF EXPORTS Dollar Value Current Real Growth Growth of Dollar (millions) Shares Dollar Values(Millions) Rate per Annum Prices Per Anzum 1980 1985 1985 1990 1995 1985-90 1990-95 1985-90 1990-95 Metal and Minerals $ 641.1 37.0% $263.7 $237.8 $435.2 -2.92 8.2X - - Tin: Concentrates S 139.3 7.4X $ 52.7 $ 32.9 $ 63.4 -5.6% 9.2% -3.6% 4.4Z Tin: Metallic $ 238.8 18.8% $133.9 $ 57.4 $118.5 -13.11 10.81 -2.91 4.4X Tungsten $ 47.4 1.4% $ 10.1 $ 17.0 $ 32.2 12.6X 8.61 -1.5X 4.6Z Autimony $ 26.4 2.2% $ 15.9. $ 20.7 $ 33.1 6.42 4.9Z -0.91 4.6X Zinc $ 36.7 4.1% $ 29.5 $ 43.0 $ 72.3 5.9% 4.91 1.91 5.81 Silver $ 118.3 1.4X $ 10.2 $ 41.2 $ 65.2 3242 -;QZ 0.01 4.41 Other Metals and Minerals $ 34.2 1.61 $ 11.4 $ 25-6 - b 50.5 15.21 249X -ft Hydrocarbons $ 245.1 52.51 $374.5 L21t.0, $139.1 0^-1 -13.8%- - - -. PetroleumLiquids $ 24.2 0.31 $ 1.9 $ 12.9 $ 0.0 58.97 -100.01 -7.621 -6.82 Natural Gas $ 220.9 52.31 $372.6 $278.1 $139.1 0.01 -12.9% -5.71 -O.02 -~~~~ - ! Non-Traditionals $ 231.3 17.41 $112i.7 $357N9. $846.8 ., t3.7%- -.- 3.0X - -- Soybeans 0.7Z $ 5.3 $ 54.2 $200.5 49.0o 24.9,? 6.9- 4.0% Other Agriculture and Manufactures ) 4.1% $ 28.9 $159.7 $410.9 27.8% 17.02 9.%fi 3.8X Non-Factor Services $ 81.4 12.61 $ 89.5 $148.0 $235.4 - 6-0 5.61 4.31 3.91 Less: Realization Costs $ -93.9 -6.9% $-49.2 $-106.5 $-240.7 - - - Total Exports of Goods and Non-Factor Services $1,023.6 100.0% $712.7 $780.1 $1180.3 2.51 1.81 Memo: Terms of Trade Index 1.000 .778 .888 Exports other than Tin and Natural Gas (after atiustment for realiza- tin costs) $ 451.0 25.91 $184.3 $433.2 $901.1 13.91 9.81 !) - 30- 66. The assumptionsmade for naturalgas are by far the most important of any of the exportassumptions, given the high weightof gas in Bolivia's totalexports. The gas projectionsare perhapsalso the most difficult,as they are more a resultof politicalthan economicdecisions. As noted in para. 61 above,the price Bolivianow receivesis far above the internationaloil equivalentprice. It must be recognized,however, that the countertraderequirements leads to a lower genuinevalue for what Boliviareceives. In addition,it can be argued that the naturalgas is sold on a long-termbasis, given the high fixed costs of the pipeline,and that gas pricesshould not fluctuateannually or semi-annuallywith the vagariesof the internationaloil market. Thus, Boliviangas was sold for less than oil equivalentlevels in the late 1970s/early1980s after the rapid petroleumprice increasesof the period,and shouldbe sold for more than the oil equivalentlevels now, after the recentprice decreases. How this issue will be resolvedis not yet clear,and will be the subjectof intensenegotiations. However, some set of assumptionswere necessaryfor the projections. It was thereforeassumed the price of the gas would fall 15% in 1987 which would still be an oil equivalentprice of about US$19 per barrell/* The volumewould be unchangeduntil 1992, when it would be cut in half. The price would remainconstant, in nominalterms, from 1987 onwards. Note that these are assumptions,necessary for the projections, and not proposalsfor what the Bolivian/Argentinenegotiations should conclude. Note also the assumptionsare important:the 15% price decline assumedfor 1987 leads to a loss of about US$50 millionwhich is equal to almostone-fifth of the projectedvalue of all exportsother than gas in 1986. 67. Soybeansare projectedto grow at a rapid rate. Due to the low initiallevels in 1985, the 1985-90rate of growthworks out to be extremelyhigh, but the underlyingfigures are based on realisticestimates of what shouldbe feasible. Even with the rapid growthassumed, the value of soybeanexports is still only US$54 millionin 1990, i.e., roughlythe value lost from the assumed15% price declinefor gas in 1987. However,by the mid-1990s,soybeans would become a major factorin Bolivia'sexport picture. This will require,of course,major efforts,in particular regardingthe developmentof transportinfrastructure. The projectionsof growth in soybeansand other exports in the 1990s are, of course,more uncertaiuthan for the earieryears, simplybecause this is furtherin the future. 68. To summarize,the projectedlevels of exportsshown in Table 3.1 shouldbe consideredto be ambitious,although not impossible.Although the overallreal rates of growthof exportsof goods and non-factor servicesare projectedto be only 2.5% in 1985-90and 1.8% in 1990-95, these low figuresreflect the depressiveeffects of tin and gas. Excluding these two commodities,Bolivia's exports are projectedto grow at rates of v3.9% and 9.8Z in 1985-90 and 1990-95, respectively, in real terms. The growthshown will dependon maintenanceof a competitiveexchange rate, as well as structuralefforts such as developmentof transport infrastructure.Although the growth rates of exportsother than tin and gai appearhigh, it shouldbe noted that these are growth rates relativeto a severelydepressed 1985 base. Comparedto the level of exportsother 17/ These assumptionswere developedin conjunctionwith the IMF which made the same assumptionsfor the purposesof their Stand-ByProgram. - 31 - tin and gas actuallyachieved in 1980, the projected1990 level at US$433 million is in fact still a littleless than the 1980 level of US$451 million. The growthin total exportsshown in the table also does not depend on the developmentof any new, large,export-oriented project. There have been discussionsof such projects,and in particular,the developmentof a gas pipelineto Brazilhas been activelyexplored since the mid-1970s. However,there are still major questionssurrounding this gas pipelineproject. The costs would be immensefor a countryin Bolivia'sposition. There are also unresolvedissues over pricing, financing,and how risk would be shared. Shouldthe pipelineprove feasible,it would have a major impacton Bolivia'sexport revenues in the 1990s. Revenueswould be comparableto those now generatedby the Argentinapipeline. However,the uncertaintiesare still such that it would not be justifiedto includesuch a projectin the export projections. Similarly,there have been discussionsof the possible developmentof massive,new, mines for tin and other ores. The potential is certainlythere; Bolivia is one of the geologicallymost promising countriesin Latin Americaand also among the least explored. However,the discussionsare still too preliminary,and the gestationlags too long, for it to be justifiedto includethe outputof such projectsin the projections. The Growthof GDP and the Major Demand ggregates 69. The possiblegrowth in GDP and the major demandaggregates is shown in Table 3.3. To judge these figures,it is useful first to examine Table 3.2, which shows severalmeasures of performanceImplicit in the figuresfor growthin GDP and its demand components.The measuresare shown for 1985-90and 1990-95,but also for 1986-91. Since 1986 is expectedto still show negativegrowth (as has each year since 1980),it is more reasonableto take as a base 1986 rather than 1985 for severalof the m-easures. 70. The projectedmarginal domestic savings rate is for most years in the range of 20-30%starting from 1987, which is not unreasonable. However,because there will be a significantincrease In public sector savingsin 1986 (switchingfrom the highlynegative levels of 1985),and becauseGDP growth is likely to be negativein 1986, the 1985-90marginal domesticsavings rate exhibitsa high value of 51.5%. The 1986-91rate of 26.1% is closerto the normal. Similarly,the 1990-95rate is artificially low becauseof peculiaritiessurrounding the 1992 reductionin the volume of naturalgas exports. 71. The five-yearincremental capital/output ratio is normallyin the range of 4 to 4-1/2. The 1986-91ratio is only 3.1, but this is an effect of the recoveryfrom the 1986 troughin output. On the whole, these ratios are probablynot unrealistic,although perhaps somewhat optimistic. The implicitelasticities of total importswith regardto GDP growthare always significantlyabove one. This is despitethe fact importsof capitalgoods were assumedto grow in proportionto fixed investment,and importsof all other goods to grow in proportionto GDP. That is, elasticitiesof one for each categoryof importswere assumed. The reason the overallimplicit elasticityis equal to two is that fixed investment,which is quite - 32 - import-intensive,is projectedto grow more rapidlythan GDP in the 1986-91 period. Investmenttherefore increases its share of GDP, and thus the overallimport requirements of the economyincrease at a fasterpace than GDP. The implicitelasticity of tax revenueswith respectto GDP also exhibitsa high value until 1990. This is the resultof the tax reform, which is assumedto be in place by 1988. 72. The resultinggrowth rates of GDP and privateconsumption in per capita terms are also shown in Table 3.2. These growthrates are low, and in fact negativein 1985-90due to the declinein 1986. However,even with recoveryback to a stablepath from 1987 (for GDP) and from 1988 (for privateconsumption), these growthrates remainvery low. They imply that per capitaGDP in 1995 would be almostexactly the same as in 1985, while per capita consumptionwould be 5.1% less in 1995 than in 1985. With per capitaGDP in 1985 alreadyone-third below the level of 1979, 18/ these projectionsindicate there is littlemargin for an even slowergrowth In output in an attemptto reduceimport demands and hence foreignexchange needs. Table 3.2: MEASURESOF PERFORMANCE 1985-90 1986-91 1990-95 Marginal Domestic Savings Rate 51.5% 26.1X 9.71 * Incremental Capital/Output Ratio (ICOR) 4.4 3.1 4.4 Import Elasticity 2.0 1.6 1.2 Tax Elasticity 6.7 1.8 1.0 GDP per Capita Growth Rate -0.4% 0.9% 0.4Z PrivateConsumption per CapitaGrowth Rate -0.61 0.21 0.41 Note: Marginalrates and elasticitiesare definedwith respectto the changein GDP. The marginalsavings rate is for Gross DomesticSavings. * See text for explanation. 18/ And, accordingto estimateswhich appearplausible, the 1985 per capitaGDP was at about the same level as at the time of the 1952 revolution. Using World Bank, World Tables, 1983, figuresfor 1955-79 GDP growth of 3.9%, and Bolivianestimates of 1950-80population growth of 2.51, the figuresare consistent. Table 3.3: GROWTH OF GDP AND THE MAJOR DEMAND AGGREGATES 1985 Levels in US Dollar Projected Real Rates of Growth Terms /a 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 GDP 3,781.6 -2.9 3.2 3.4 4.2 4.0 4.0 0.0 4.0 4.0 4.0 Total Consumption 3,488.7 -5.5 1.8 3.3 3.3 3.7 3.6 3.3 3.3 3.1 3.0 Private Consumption 2,899.0 -0.4 0.2 3.8 3.8 3.7 3.5 3.5 3.2 3.0 2.8 Public Consumption 589.7 -30.4 12.9 0.0 0.0 4.0 4.0 2.0 4.0 4.0 4.0 Total Investment 244.6 31.3 33.8 8.5 10.1 9.9 7.0 4.4 5.6 5.0 5.0 Private Fixed Investment 151.3 6.0 8.1 10.0 10.0 10.0 7.0 5.0 5.0 5.0 5.0 Public Fixed Investment 124.2 52.2 34.3 7.5 10.0 10.0 7.0 5.0 5.0 5.0 5.0 Inventory Accumulation -30.9 ------Exports of Goods and Non- Factor Services 712.7 -1.4 1.6 2.5 6.4 3.4 4.8 -16.4 6.7 8.0 8.4 Less: Imports of Goods and Non-Factor Services 664.4 -2.3 9.3 5.0 6.0 6.0 4.9 1.9 4.2 4.2 4.2 Memo: Public Fixed Invest- ment in Current Dollar Terms /b (in millions) 124.2 197.3 274.5 306.5 350.0 400.2 444.8 485.3 529.5 577.5 630.1 /a Converted to US dollars at real exchange rate of 1986. Units are millions. 7i Obtained by applying a world dollar inflation index to the Public Fixed Inves.ment level expressed in real terms. . 34 - 73. The growthrates of GDP and its maindemand components, shown in Table3.3, should be consideredin lightof the above. The GDP growth ratesshown must be consideredmodest in termsof the consequencesfor per capitaincomes and consumption.The exportfigures derive from the assumptionsunderlying Table 3.1, while the importdemands follow, as noted above,from the growthof GDP and of fixedinvestment. The 1986-89figures for GDP,publie consumption, and publicinvestment were all basedon estimatesmade by the IMF in September1986, as partof the current Stand-by Program. It is seen that the 1986-87growth of public fixed investmentis extremelyhigh, but this is relative to thevery depressed levelsof 1985,and the resultingfiscal deficit is oonsistentwith the Stand-bytargets. Such growth is alsonecessary for thereto be an economicrecovery. The resultinglevels of public fixed investment in currentdollar terms are shownin Table3.3 as a memo item. A public investmentprogram at theselevels would be consistentwith balance of payments equilibrium, at least through 1989. After 1989 a financing gap opensup, as notedin the Introductionabove and as will be discussedin detailbelow. Table 3.4: GOVERNMENTSAVINGS Shares of GDP Change in (in%) Percentage Shares T-8-5 1990 1995 1995-90 1990-95 A. GovernmentExpenditures a/ 18.9 19.1 20.2 0.2 1.1 1. PublicConsumption 15.6 11.3 11.6 -4.3 0.3 2. PublicFixed Investment 3.3 7.8 8.6 4.5 0.8 B. GovernmentRevenues 7.9 15.9 16.0 8.0 0.1 C. CurrentSavings b/ -7.7 4.5 4.4 12.2 -0.1 D. CashFlow . -11.0 -3.2 -4.2 7.8 -1.0 a/ Due to lackof basicdata, government expenditures shown here correspond to National Accounts estimates of government final expenditures, and therefore exclude transfers. The current savings and cash flow figures thus exclude transfers. To the extent net transfers are positive, these figures thus overestimate true government savings, while private sector savings will be correspondingly underestimated. b/ Defined as government revenues less government finalexpenditures for consumption. c/ Defined as government revenues less government final expenditures for consumption and investment. Note: Totals may not add due to rounding. - 5 - 74* The feasibilityof the projectionsshould also be consideredin lightof the way the resultingsavings/investment balance is achieved.The relevantfigures, shown as sharesof GDP,are givenin Tables3.4 and 3.5. A crudeestimate of governmentsavings is presentedin Table3.4. Because estimatesof governmenttransfer payments could not be projected,the figures for government savings are of government revenues less government final consumption expenditures only and the "cash flow" figures are of revenues less final consumption and investment figures only. Had projected government net transfer figures been known, the calculated government savings figures would have been reduced by the amount of net transfers, with the private savings figures increased by an equal amount. Total domestic savings wouldbe unchanged.Moreover, the basicstory of Table 3.4 would not change. That story is that the projections foresee a major shift in public expenditures between1985 and 1990 or 1995 from consumption to investmentexpenditures. The overalllevel of governmentexpenditures, as a share of GDP,would be only slightly higher. However, government revenues wouldincrease as a resultof implementationof the tax reform. The apparentextent of the increaseis exaggeratedbecause of the choiceof 1985as a base,when governmenttax revenueswere particularly low. However,even compared to a morenormal period, there is stilllikely to be a genuinesignificant increase as the tax reformis implemented.With totalgovernment expenditures about constant as a shareof GDP while revenuesare 8% pointshigher, the 1985-90 "cash flow" improves by almost 8% pointsof GDP. Withpublic consumption reduced as a shareof GDP by over4% points,the 8% risein currentgovernment revenues leads to a 12% point shift in government current savings. These are very significant shifts, even taking into account the nature of the 1985 base, but are nonetheless consistent withthe government'scurrent policies. In fact, the decline in public consumption as a share of GDP of 4% points is likely to have already been achieved in 1986 under the current very tight controls. The projected rise in government revenues is, however, still dependent on the implementation of the tax reform, although in the short run the government is collecting more in transfers from YPFBthan is foreseen for the longer run. 75. The overall savings/investment balance shown in Table 3.5 indicatesthat a majorincrease is projectedin the share of investment in the economy,both public and private.A riseof 6.8%points is foreseen for 1985-90,and a furtherrise of 1.5%points by 1995. The overall investmentshare of GDP wouldstill be low,however, at the end of this period,at only14*8% of GDP. The 6.8%point rise in total investment/total savings in 1985-90 is more than matched by the 12.2% point increase in government savings, which was examined in Table 3.4. Foreign savings (the trade deficit) increases by 2.1% points, as the growth requirements for importsoutpace likely export growth. Privatesavings thereforefalls by 7.4% points of GDP. However, the decline is from artificially high levels of 1985, when government dis-saving was offset by forced savings of the private sector. This forced savings occurred during the first half of the calendar year, when the Government was still running large deficits which it "financed" through building up arrears and through printing money. The levels of private sector savings foreseen for 1990 and 1995 of about 8% points of GDPare in fact closer to what one would expect for a country at Bolivia's level of development. - 36 - Table 3.5: SAVINGS/INVESTEINTBALANC3 Shares of GDP Change in (in%) Percentage Shares 1985 1990 1995 1995-90 1990-95 A. Total Investment 6.5 13.3 14.8 6.8 1*5 1. PrivateFixed Investment 4.0 5.4 6.0 1.4 0.6 2. PublicFixed Investment 3.3 7.8 8.6 4.5 0.8 3. InventoryAccumulation -0.8 0.1 0.1 0.9 0*0 B. TotalSavings 6.5 13.3 14.8 6.8 1.5 1. GrossDomestic Savings 7.7 12.5 12.1 4*8 -0.4 A. Private 15.4 8.0 7.7 -7-4 -0*3 B. Public -7.7 4.5 4.4 12.2 -0*1 2. ForeignSavings (Trade Deficit) -1.3 0.7 2.6 2.1 1.9 Note: Totalsmay not add due to rounding. 76. To conclude,the projectionsof growthof GDP,consumption, investment, exports, and imports,and the resultinginvestment and savings ratios,are probablyfeasible although admittedly ambitious. The implied marginalsavings efforts and ICOR'sare not implausible,and the overall growth rates are in linewith what Boliviahas achievedsince 1952, unfortunately not more. The overall growth depends on the achievement of quiterapid growth in exportsother than tin and gas,on implementationof the tax reform, and on achieving rapid growth in public and private investment while holding down public consumption. However, a slower rate of growth of per capita output and private oonsumption would be socially unacceptable,while a lessrapid growth in investmentwould imply even lowerincremental capital/output ratios if the GDP growthwere maintained, and such lower ICORsare unlikely to be feasible. Bolivia,therefore, faces a very narrow range of choices. III. The Balance of Payments and External Capital Flows 77. The exportand importprojections discussed above, coupled with accruedinterest on the stockof outstandingdebt plus someother small items, yiUlds the current acoount balanoe. The figuresare shownin Table 3.6* Factor service receipts are mainly interest on reserves while other factor service payments are mainly payments on direct foreign investment, and include, for example, payments due Occidental and Tesoro for the gas they produce for sale through the pipeline to Argentina. - 37 - TW6s 1M1 c PAENWM; TIM in U.S. Dolla NilUim TOMn 195- 1986 1819898 8 -911990 1919 1993 1994 1995 9-- 1. s1o_m hin 48.5 -778 -19D07-24.0 ..M.9 -25.0 -2i07 -3W.5-381.0 -364.3 -34.8 A. 19 rim at Gd&d & 712.9 611.2 591.9 659.4 714.2 781 857.5 812.2 912.31035.4 118W3 14 &$ B Tortsof Q>oAs& ES 664.4 Z9.0 72.6 M5.5 940.1 1C05.111.2 1194.81293.2 1399.81515.2 9.1 7.S, 2. hctor 9nioebo$pt. X45 26.8 34.3 34.0 32.0 34.0 35.0 36.0 38.0 40.0 42.0 3. hcorW rviaoe1mts 434.9 356.6 3682 3.5 42).5 451.7 469.2 597.1 557.2 612.2 66S.6 A. Ta itust 36.6 Z71.6 26*2 3W*.53M.4 360.6 375.2 410.8 457.2 5M.2 560.7 Paid 142.1 135.6 199.0 211.2 226.5 244.1 266.3 291.9 329.0 369.1 409.7 pLbIasd 194*5 136.0 87.2 96.3 105.9 116.5 10t.9 118.9 1282 139.1 151.0 IL 01, Fcor 9ari Pm_ 9B.3 85.0 3.0 03.0 M0 91.0 94.0 97.0 100.0 10Q.0 10O.0 4. Privte 1m;fem - Not 14.5 18.0 ;0.0 22.0 24.0 26.0 W.0 3D.0 32.0 34.0 36.0 (mut Aomat b . -347.4-M9.6 -*.6 .50.5 -W90.4-646.6 -77.0 -3.6 -868.1 -902.5 -95.5 M: Ratio of (Imt oot bluuI GlP(%fM ) -9.2 -10.2 -12.3 -12.5 -12.4 -12.6 -12.2 -14.3 -13.9 -13.4 -12.7 78. The principal points to note in Table 3.6 are that both the resouree balance and the current acoount balance are projected in this base-line scenario to grow increasingly negative over time. In 1985-90, imports of goods and non-faotor servioes grow at a 9.3% nominal rate (4.7% real and 4.4% from price inflation) while exports grow at a 1.8% nominal rate (2.5% real 9 / and -0.6% from price declines). The result is a negativo, and wideni, resource balance, which stems directly from the poor export prospects for tin and gas. Although the projeoted trade deficit does begin to narrow slightly after 1992, not much weight should be placed on this given how small the change is (the trade deficit is still larger in 1995 than in any year prior to 1992), and, more importantly, the fact this is so far in the future that such projections are quite uncertain. 19/ But note that excluding tin and gas, the rate would be 13.9%. - 38 - 79. The currentaccount balance similarly worsens over time. Here, however,it starts from a base level deficitof almost $350 millionin 1985 (9.2% of GDP),which impliesroughly (after non-debt creating capital flows are taken into account)that Bolivia'snet foreigndebt will increaseby almost that much. Thxs leads to growinginterest obligations over time (aftera one-timefall in 1986 due to the fall in internationalinterest rates in that year),which adds to the currentaccount deficit. The currentaccount deficit thus compoundson itself,and very strenuous effortswill be re4uiredto bring it down. 80. The assumednet externalcapital flows are shown in Table 3.7. The figuresare shown in some detail,in order to elucidatewhat was assumedfor particularcreditors. It should be noted however,that the projected plans are by no means certain. Both gross disbursement and amortization figures are shown, rather than just the net capital flows, as planneddisbursements refer to the gross figures. The basic assumptions underlyingthe table are as follows:Multilateral lenders are assumedto followan ambitiousprogram of new commitments,with significantfast disbursingoperations early in the period. The commitmentsare based on what can be reasonablyassumed of the lendingplans of the IDB (both throughthe Fund for SpecialOperations and from Ordinaryand Inter-RegionalCapital), the CorporacionAndina de Fomento(CAW), FONPLATA, IDA and othermultilaterals. It is assumedBolivia will be able to draw from the IMF on a CompensatoryFinancing Facility of SDR 64 millionin 1986,on a StructuralAdjustment Facility of SDR 18 millionin 1986 and SDR 11.8 millionin 1987 and in 1988,and on a seriesof three Stand-by Arrangements,starting with the SDR 50 millionStand-by approved in June 1986 and followingwith two more of SDR 34.6 millioneach which would maintainthe eame quarterlypace of purchasesas under the firstStand-by for two more years. Bilateralcreditors (including suppliers' credits, which are mostlyfrom officialsources) are assumedto continueto reschedulethrough the Paris Club the amortizationpayments coming due, with the reschedulingterms similarto those agreed in June 1986. Interest paymentsto the Bilateralsare kept current,except for those in 1986-87 which were capitalizedas part of the June 1986 agreement. Bilateral creditorsare also assumed to provide significant new loan disbursementsas well as an increasein grant aid. Finally,private financial institutions are assumedto continueas since March 1984 in not receivingany amortizationor interestpayments (except for a one time paymentof $40 millionin 1987). Interestpayments due the privatefinancial institutions - 39 - Table 3.7, N8T FINANCNG¢tQUIRENBTS In aillionsof US Dollars 1098 1987 1988 1989 1990 198;6-9 1991-95 CurrentAccount Balance -389.6-504.6 -550.5 -590.4 -646.6 -2681.7 -4196.7 1. Net OfficlalTransfers 77.0 95.0 101.0 106.0 111.0 490.0 646.0 2. Net DirectForelgn Investment 10.0 20.0 35.0 45.0 50.0 160.0 325.0 3. Net Qisbursementaon MLT Debt 295.3 352.1 374.3 388.2 336.5 1746.4 1263.2 a. IBRD and IDA: Net 2.9 55.8 30.5 19.1 14.6 122.9 316.0 (i) Gross Disbursements 20.2 73.4 48.7 37.7 33.7 213.7 406.3 (11) Amortization -17.3 -17.6 -18.2 -18.6 -19.1 -90.8 -90.3 b. IDS: Net 60.3 87.4 105.1 105.5 114.1 472.4 391.9 (1) Gross Disbursem_nts 73.0 109.8 130.0 133.8 142.4 589.0 656.7 (IL) Amortization -12.7 -22.4 -24.9 -28.3 -28.3 -116.6 -264.8 c. DIF Trust Fund and SAFs Net 13.7 6.2 6.2 -4.6 -2.3 19.2 -31.4 51) Gross Disbursaents 21.7 14.2 14.2 0 0 50.1 0 (11) Amortization -8.0 -8.0 -8.0 -4.6 -2.3 -30.9 -31.4 d. OtherMultilateral: Net 5.8 21.7 13.0 21.2 9.3 71.0 -18.8 Mi)Gross Disbursements 31.0 42.9 26.9 35.6 29.5 165.9 144.5 (ii) Amortization -25.2 -21.2 -13.9 -14.4 -20.2 -94.9 -163.3 (Sub-total:All Multilateral):Net 82.7 171.1 154.8 141.2 135.7 685.5 657.7 e. Bilateral(lmcl. Suppliers Cr.): Net 138.6 132.4 123.2 141.1 84.4 619.7 -40.1 (i) Gross Disbursements 138.6 132.4 123.2 141.1 149.7 685.0 850.4 a) ProjectDisbursements 76.5 93.9 123.2 141.1 149.7 584.4 850.4 b) CapitalizedInterest 62.1 38.5 0 0 0 100.6 0 (ii)Amortization (after rescheduling) 0 O 0 0 -65.3 -65.3 -390.5 g. FinancialInstitutions: Net 73.9 48.7 96.3 105.9 116.5 441.3 645.4 (i) Gross Disb. (allcapitalized interest) 73.9 48.7 96.3 105.9 116.5 441.3 645.4 (i) Amortization 0 0 0 0 0 0 0 4. Net Short-termDebt 0.0 13.8 11.8 15.0 15.0 55.6 75.0 5. IMP Upper Tranches 86.2 18.6 39.4 14.9 -64.5 94.6 -149.6 (i) Purchases 116.0 41.6 41.6 20.8 0 220.0 0 (11) Repurchases -29.8 -23.0 -2.2 -5.9 -64.5 -125.4 -149.6 6. ChangeIn Reserves(- - Increase) -174.5 5.0 -11.0 -9.0 -20.0 -209.5 -100.0 7. Errorsand Omissions 95.6 0 0 0 0 95.6 0.0 8. RemainingUnfinanced Gap 0 0 0 30.3 218.6 248.9 2137.2 - 40 - are insteadcapitalized with debt due the coumercialbanks therefore growing.20/ 81. Table 3.7 shows that throughsuch extraordinaryfinanclig measures It could be possibleto cover the growingcurrent account deflcit until 1989, and the unfinancedgap would still be small in 1989 at $30 million. However,beginning in 1990, when the firot paymentsbegin to come due (on rescheduledarrears) on the June 1986 Paris Club rescheduling,and when the INF begins to receiverepayments on the 1986 Stand-byand CompensatoryFinancing Facility, the unfinancedgap widensto $219 million. The gap is then projectedto grow to $249 millionin 1991, $406 million In 1992 (when naturalgas sales are cut back), $494 millionIn 1993, $490 millionin 1994, and $538 millionin 1995. 82. How the unfinancedgap of the 1990s might be closedis discussed in paras. 84-86 below. First,however, it is usefulto examinethe resultingdebt and debt serviceratios. The key ones are presentedIn Table 3.8. The ratio of total debt 2 1 / to exports of goods and services rises over the period from 524Z in 1TS5 to about 750X In 1995. These are extremeratios. The average such ratio for the major debtorsIn Latin America is in the 350-4002range. Althoughthere Is some declineIn this ratio for Boliviafrom 1992 onwards,this dependson the projectionsof exportsin the mid-1990s,which are quite uncertain. The interestto exports ratio is also extremely high at almost 452, and remins at roughly this level throughout the period. The rough constancy, despite growth in the debt to export ratio, results from an assumed decline in international interest rates late in the period plus a shift from finance at comercial rates to finance at concessional rates through IDA, the IDB's F80, and some 20/ Different financing assumptions could of course have been made. In particular, the treatment of the commercial bank debt sasumes a continuation of the present de facto arrangementswhere all interest is capitalizedand there are no cash flows betweenBolivia and the banks. It Is in the interestsof both partiesto reach a realistic agreement. Yet the terms on which agreementmight be .eachedare by no means clear. If they entaila reductionin the rate at which interestaccrues to below market rates,with the remaininginterest still capitalized,then there would be no directeffects on the economy,even thoughthe bookkeepinglevels of the currentaccount (whichincludes accrued interest) and of the externaldebt (which includesthat part of interestwhich is capitalized),would be less. If the agreementalso assumesBolivia pays with cash some part of the interest accruing (at either market rates or below), then either financing would have to be found to cover these payments or Imports (and hence growth) will have to be reduced. 21/ Note that the "unfinanced gap" is included in the total debt, and hence in the interest and amortization figures of Table 3.8. It is assumed the unfinanced gap accrues as debt financed on commercial terms, with an interest rate of LIBOR + 1-1/2X. Table3.8: DEBT AND DEBT SERVICE RATIOS 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 (all in percent) A. Ratios to Exports of Goods & Services TotalExternal Debt 524.0 658.6 728.1 737.8 724.4 724.3 718.1 827.8 810.8 782.6 747.9 Interest (including eapitalized) 44.8 41.4 44.3 44.2 43.2 42.9 40.8 46.7 46.5 45.8 44.6 Amortization(only what is paid) 24.1 14.2 14.3 9.7 9.3 23.8 25.4 31.1 31.9 32.0 31.5 Total Debt Service 68.8 55.6 58.6 53.9 52.5 66.7 66.2 77.8 78.5 77.8 76.1 B. Ratio to GDP Interest (innluding capitalized) 8.9 7.1 7.0 7.0 7.0 7.0 6.7 7.1 7.3 7.5 7.7 Total ExternalDebt 104.2 112.7 114.9 116.6 117.1 118.2 118.8 125.8 127.5 128.7 129.1 - 42 - bilaterallending. The debt serviceratio first declines,because of the Paris Club reachedulingsof principal,but then grows in the 1990s when these rescheduledpayments come due. The ratio to GDP of externalinterest due is high at 7 to 8% (8.9% in 1985),particularly when comparedto investmentin Boliviatwhich was only 6.5% of GDP in 1985. The total externaldebt to GDP beginsat over 100%, and grows to almost 1302 by 1995. 83. The size of the unfinancedgap in the 1990s,plus the growth in the standarddebt and debt serviceratios, suggest that Bolivia's predicamentis of a long-termsolvency nature. The questionis what can be done about it. The problemis not in the near-term,although steps must be taken now to contendwith these long-termproblems. That is, a financial gap does not appeer likelyfor the next few years,and recognitionof Bolivia'slong-term difficulties is not likelyin itselfto createa near-termliquidity problem through the dryingup of commercially-oriented sourcesof capital. The net flows from commercialsources are already zero, and projectedto remainso. 84. There are not many optionsfor resolvingthe long-term difficulties.Although there is some degreeof substitutionpossible where more adjustmenton the part of Boliviaor more financefrom one sourcecan offset less financefrom anothersource, the room for maneuveris not great. It is clear that any plan will need to containmost and perhapsall of the followingelements. First,despite the measurestaken thus far and despitethe projectedalready rapid growth of exportsother than tin and gas, Boliviawill need to push for an even more rapid growth in exports. Without such adjustment,where insteadadditional debt is incurredto close the unfinancedgap, ratiossuch as of debt to exportsor debt to GDP would continueto grow. It is true that a large-scaleproject in the 19908 in mining or perhapsthe gas pipelineto Brazilmight lead to a quantumjump in exports. There might also be continuedgas exportsto Argentinaat currentvolumes. However,these are still too uncertainfor the government to rely on to resolvethe problems. 85. Second,additional net financingand the terms on which it is arrangedmust be reviewed. In additionto Paris Club reschedulingon highly concessionaryterms, suitably tailored to Bolivia'sneedts, official financewould also need to be offeredon concessionalterms as well as increasedin magnitudeto levelsover that now planned. It will also be .criticalthat the funds be channelledto quick-yieldingprojects which promoteexports either directly or indirectly(for example,transport infrastructureincluding maintenance and rehabilitation). 86. Third, it may be necessaryto recognizethat Boliviawill not be able in the foreseeablefuture to serviceits commercialbank debt in the normalway, and that thereforemechanisms need to be found to allow for innovativedebt restructuringof a kind that will be appropriate,given Bolivia'seconomic situation. Boliviahas in effectbeen rollingover -43 - interest and princip4 paymeqp,! on its debt since March 1984.22/ 87. A scenariov was dev44ipe4which includes these various measures in an attempt to delimit what wu be necessary to close the financing gap projected for the 1990s and to 'pts the economy on a viable external financing path. Moasures were t4ken In 1l1 three areas noted above. First, exports were accolerat*4d1teginning about 1989-90, following an acceleration in investmnt sticting in 1988. It was not assumed the growth in exports would result 1fromi the introduction of some large-scale export project, such as a natuol 4gas plpeline to Brazil, but rather froma broad-based expansionof all &ports other than natural gas. Specifically, the 1989-95 real growth Aiiexports other than gas was increased to 13.41 per year, from 9.3% in the base case. Fixed investment in 1987-95 was accelerated to a 9.2Z growth rate, from 6.9% in the base case. Second, external assistance was increased, most of it on concessional terms and mostly from 1990 on. Total gros disbursements of the multilaterals was zaised by about $290millionIWT990-95 from $1,410 milliou total in the base scenario to $1700 million. Bilateral assistance was raised from $1,000million to $1420 millton. Repayment of principal to the Paris Club was postponed to 1994 from the currentschedule of 1990, but it does appear 1994 is a realistic date for whenrepayments could resume, 1iventhe other assumptions of the scenario. Official grants were raised from $760 million to $850 million for the fullperiod. Third, it was assumed commercial bank and private non-guaranteed debt would be fundamentally restructured. 88. Under such assumptions, the financing gap would be closed. More importantly, standard indicators of creditworthiness would improve markedly, and one could have some confidence that the path after 1995 would remain viable. Interest due as a proportion of exports of goods and services would fall to 18X by 1995, versus 45% in the base case, and would be on a declining rather than steady path 7 The debt service ratio would be 39% versus 76% in the base case, and the debt to exports ratio would be 390X versus 750%in the base case and would also be on a declining path of roughly 40% points a year. The current account deficit would be 6.7% of GDP versus 12.7% in the base case, and would be declining by about 1-1/2 parcentage points per year. A substantial share of the credit for the improvement in these ratios must of course be ascribed to the restructuring of the commercial bankand private non-guaranteed debt. Rowever, the latter accounts for very roughly only somewhat less than half of the improvement. The remainder arises from the more rapid export growth plus the shift to more concessional assistance. Without the debt restructuring assumption (with the remainderof the scenario as described), the 1995 interest to exports ratio would be 28%rather than 18%, the debt service ratio 49% rather than 39%, the debt to exports ratio 550%rather than 390X, and the current account deficit 8.7% rather than 6.7%. 89. Such a scenario cannot be described as the "most likely case" under present circumstances, but it does Indicate broadly the parameters of whatwill be necessary. It is also not totally unrealistic: non-gas 22/ In part as a consequence of this and Bolivia's poor prospects, Bolivian debt io now trading on the secondary market at a significant discount. 21E A8 - - 44 - exports,:of13.4X a year over 1989-95(versus 9.3% in the ase case) should not be"Jppssible, and total externalassistance (including grant aid) wtuld AWit#geonly about $140 million per year more (or about 26X) than is efvigione4for the base case. However,the scenariowould very definitely requirea carefullyformulated public sectorinvestment program, as part of a well thoughtthrough set of sectoralpolicies, If such growth is to be achieved. The government has in fact already begun to develop such a long-term program, with work on the mining sector the furthest along, and a reasonableobjective would be to have a completestrategy formulated within a year. IV. Conclusions 90. - The stabilizationand reformprogram of the currentgovernment has set the stage for a possiblerecovery in the Bolivianeconomy. With the implementationof currentlyplanned policies, the plannedincrease in externalassistance, and continuedrelief to 1990 of externaldebt service obligations,the balanceof paymentsappears to be manageableuntil about the end of the decade. This is a substantialachievement. It would have been impossibleunder the conditionsof a year and a half ago, and also dependson substantialefforts and understandingon the part of Bolivia's externalcreditors. 91. Such efforts,substantial as they are, would not sufficehowever by the 1990s. Althoughthere are still,of course,great uncertainties, the broad parametersof what will be requiredcan be calculated.These indicatethat by takinga broad-basedapproach dealing with exports, increasedexternal assistance, and debt relief,a viable outcomecan be generated. Such a solutionwill require,however, a carefullydeveloped public sectorinvestment program, and more generally a well-developedset of sectoralstrategies. Work on such a long-termstrategy has already begun,and a reasonablegoal would be to have them completedwithin a year. '2 - 45 - STATISTICALAPPENDIX TABLE OP CONTENTS 1. Population 1.1 Total Populationfor 1950-1985by Sex 1.2 Populationdistribution by Region 1984-85 2. NationalAcoounts 2.1 Gross DomestieProduct by Sectorof Originat ConstantPrices, 1980-85 2.2 Annual Gr.,wthof GDP by Sectorof Origin,1980-85 2.3 Compositionof GDP by Sectorof Origin,1980-85 2.4 Gross DomesticProduct by ExpenditureCategory in Current Prices,1980-85 2.5 Gross DomesticProduct by ExpenditureCategory in Constant Prices,1980-85 2.6 Gross DomesticProduct by ExpenditureCategory in Constant Prices (Growthgates) 2.7 Gross DomestioProduct by ExpenditureCategory in C6rrent Prices (as Percentageof GDP) 2.8 ImplicitGDP Deflators,1980-85 3- Balanoeof Payments 3.1 Balanceof Payments,1980-85 3.2 MerchandiseExports in CurrentPrices, 1980-85 3.3 MerchandiseExports in Constant1980 Prices,1980-85 3.4 MerchandiseExports Price Indices,1980-85 3.5 Merchandise Imports in Current Prices, 1980-85 3.6 Merchandise Imports in Constant Prices and Price Indices, 1980-85 3.7 Dire¢tionof Trade,1980-85 4. Public Sector Finances Summary of Public Sector Operations, 1980-85 4.1 Central Administration Operations 4.2 Social Security (CNSS) Operations 4.3 Other Decentralized Agencies 4.4 Subtotal Central Government Operations 4.5 Looal Government Operations 4.6 Subtotal General Government Operations 4.7 Operations of Nonfinancial State Enterprises 4.8 Operations of the Consolidated Public Sbetor 4.9 Operations of the Consolidated public Sector as Percentage of GDP 5. Prioes 5.1 Consumer Price Index - 46 - TALE1.1: BOLIVIA- TOTAL PO TIONFOR 15-18 B El YEAR TOTAL NALE FEMLE OWHRATE 1950 27030 1326 1377000 1955 2973000 145000 15100 1.9 1960 3325000 1632000 1693000 2.3 1965 3761000 194800 1913000 2.5 1970 4292000 2106000 2176000 2.6 1975 4988000 2407000 281000 2.7 1980 559000 2762000 2837000 2.9 1981 5755000 28400 291500 2.8 1982 59160 mo20 M29 2.8 1993 6081000 3002000 3079000 2.8 1984 625200 3087000 3165000 2.0 1985 642900 3175000 3254 2.8 Urbs 3069000 1498000 1570000 Rural 3362000 167000 1684000 Source:Iustituto Naciosalde Estadisticas. Novutber4, 1986 - 47 - Table1.2: BOLIVIA- POPULATION DISTRIDUTION BYRE6ION 1984-1985 1984 1985 GrowthRate NationalTot4l 62521 6429226 2.8 TotalCapitals 2146835 223540 4.1 Chuquisaca 454573 462904 1.9 Sucre 84505 86609 2.5 LaPAZ 2029008 2091429 3.1 LaPaz 953634 "92592 4.1 Cochabiaba 954790 979171 2.6 Cochabauba 304960 317251 4.0 Oruro 403301 412756 2.3 Oruro 172814 178393 3.2 Potosi 859749 878232 2.1 Potosi 109876 113380 3.2 Tarija 261989 270027 3.1 Tarija 58319 60621 3.9 SantaCruz 1l11690 1047964 3.6 SantaCruz 419042 441717 5.4 Beni 231976 239810 3.4 Trinidad 38833 40288 3.7 Pando 45645 46933 2.9 Cobija 4852 4989 2.8 Source:Instituto Nacional de Estadisticts. Noveaber4, 1986 - 48 - Table2.1ia OLIVIA- OS DESTICPRODICT BYSECTOR OFORIIN IN CONSTANTPRICED, 1990-15 INillionsof 1980SbW 1990 1991 1912 183 1964 1I9(e) BrossBadtiL Productat .p. 123458 12299 116139 107114 105259 1019 Indirect Taes 3320 3743 2559 2505 3305 3314 BrossDoestic Productat f.c. 120138 1i125l 1135 105309 101954 9176 Anriculture 22541 22348 24477 1766 2069 21215 Nining 1934 19329 19578 18390 1542 1896 Hdrocarbons 6731 7167 7286 6927 661 641 Nimr4ls 12633 12162 11M 11563 9181 7437 Inuf acturing 18177 1680 14815 14311 12136 10726 Electricity, Gasand later 818 919 9O 996 908 83 Construction 4401 379 4020 3903 3294 3376 Comerce 13439 14510 10963 10735 10724 10338 Transport,Storage and Communication 7335 6202 6743 65 6033 5701 Finace 7291 6412 6000 5638 5505 5290 Bnral overnmt 12940 12360 13464 13949 140 13725 Other 13922 14312 13418 13356 12019 12627 o) etimates. Source: Centrallank of Boliviaand INF. November4, 196 - 49 - Table2.23 BOLIVIA- AWAL GROWTH OF6DP BY SECTOR OFORISIN, 1980-5 lpercentage) 1980 1981 1992 1983 1984 1995() GrossDostic Productat o.p. 1.2 -0.4 -5.6 -7.2 -2.4 -4.0 Indirect Tues 1.6 12.7 -31.6 -2.1 31.9 0.3 GrossDomstic Product at f.c. 1.2 -0.7 -4.8 -7.3 -3.2 -4.1 Auritulture 5.2 -0.9 10.4 -27.6 15.8 2.5 linino -2.0 -0.2 -3.9 -1.0 -13.9 -12.3 Kfdrarbons 6.2 6.5 1.7 -6.3 -2.4 -3.0 -1.2 -3.7 -7.2 2.4 -20.6 -1.0 Nhoufacturing -1.0 -6.6 -12.8 -3.4 -15.2 -11.6 Electricity, Gasand later 2.5 12.3 -2.1 -0.4 1.3 -2.8 Cwontructton -5.0 -11.9 3.6 -2.9 -15.6 2.5 Comerce n.a. 9.0 -24.4 -2.1 -0.1 -3.6 Transport,Storage and Communication 2.0 11.8 -17.8 -7.1 -3.7 -5.5 - Finance n.a. -11.9 -6.4 -6.0 -2.4 -3.9 Beneral6overnment -4. 8.9 3.6 0.4 -2.0 Other n.a. 3.5 -6.2 -0.5 -4.0 -1.5 (e) estimates. Surce: Table2.1 November4, 1986 - 50 - Table2.3z BOLIVIA- CMNPMSITIOR OF6DP DY SECTOR OFORIOIN, 199-85 (Aspercentage of 6ON in constant prices) IM0 1981 1902 1903 1914 1995(e) GrossDomestic Product ate.p. 100.OZ100.02 100.02 100.02 100.0 10.02 IndirettTaxs 2.72 3.0Z 2.22 2.3X 3.12 3.32 8ross DomesticProduct atf.c. 97.32 97.02 97.02 97.72 96.92 9.72 hriculture 18.32 18.2221.22 16.62 19.72 21.02 Zing MR15.7215.72 16.02 17.12 15.12 13.71 gdrocarbons 5.52 5.82 6.32 4.32 6.32 6.42 nerals 10.22 9.92 q.n 1.n2 .7Z 7.41 Manufacturing 14.72 13.89 12.82 13.32 11.52 10.62 Elertricity,6asnd Mater O.7n o0. 0.o2 o0.1 0.92 o.9 Construction 3.62 3.22 3.52 3.62 3.12 3.32 Commerce I1.92 11.82 9.42 10.02 10.22 10.22 Transport,Storage and Coumnication 5.92 6.72 5.82 5.82 5.72 5.62 Finance 5.92 5.L2 5.22 5.2t 5.22 5.21 general wovernmnt 10.52 10.02 11.62 12.92 13.32 13.62 Other 11.22 11.62 11.62 12.42 12.22 12.52 (i)estimates. Source:Table 2.1. Novembe4, 199 - 51 - Table2.4: DOLIVIA- SROSS DOESTIC PIWOUCT 8YEXPENDITIRE CATECORY INCURRENT PRICES (aillionofbS) 1980 1981 1992 1983 1994 199 GOP 123,458 153,049 389,0111,356,834 19,533,596 2,113,978 Net Fattor Income (7,250 (9,831 (29,788) (98,463)(1,288,090) (181,4761 6NP 116,208 143,166 359,223 1,258,371 18,245,5061,932,402 Resourceap 4,867 (3,630) 14,961 39,341 640,617 25,367 Importsof Boadsand NFS 120,718) (28,620) 145,607) (157,665)(1,779,955) (372,042) Exportsof Goodsand NFS 25,595 24990 60,568 196,0062,420,572 397,409 AvailableResources 128,325 149,419 403,9721,39M,175 20,174,213 2,139,245 Consuption 101,159 137,737 335,9561,229,589 17,173,839 1,951,583 Private 03,829 119,211 274,477 "3,525 12,936,1031,60,894 GneralSoverament 17,330 18,526 61,479 246,0644,237,136 330,699 Investment 17,432 18,942 38,094 88,904 1,719,140 136,929 PrivateFixed Investment 9,044 5,885 19,586 67,842 781,344 84555 PublicFixed Investment B9,593 12,186 25,717 6B,I4 709,475 69,684 ChanpesinStocks (205) 871 17,209) (47,086) 228,321 (17,311) DomesticSavings 22,299 15,312 53,055 127,2452,359,757 162,295 NetFactor Income (7,250) (9,883) (29,799) (99,463)(1,289,090) (191,476) CurrentTransfers 1,460 971 5,385 25,541 215,042 36,361 NationalSavings 16,509 6,400 28,652 54,323 1,356,709 17,180 For 1995,figures are in billions of b $. Source:Central Dank, INF, and IB1staff estimates. Noveeter5, 1986 - 52 - Table2.5s BOLIVIA- GROSS DNESTIC PRODUCT DYEXPENDITIRE CATESORY INCONSTANT PRICES (millionsof 1980 $ 1980 1981 1982 1983 1984 1985 6DP 123,458 122,994 116,138 107,914 105,259 101,097 NetFactor Income (7,250) (8,029) (8,943) (7,870) (7,129) (8,482) BIP 116,208 114,966 107,195 99,944 98,130 92,615 Resurce Gap 4,967 (2,966) 4,528 3,019 6,82B 2,880 Importsof Goods and NFS 120,718) 123,006) (13,590)112,506) (13,812) 115,747) Exportsof foodsand WFS 25,585 20,040 l8,118 15,525 20,60 18,627 AvailableResources 128,325 120,02B 120,66 110,833 112,087 103,977 Consumtion 101,159 I11,709 100,345 97,947 88,921 91,820 Private 83,829 95t828 81,982 18,406 69,001 75,961 kOeral6overnment 17,330 14,881 18,363 19,541 19,920 15,859 Investmt 17,432 15,251 11,265 6,848 9,510 6,397 PrivateFixed Investment 9,044 4,678 5,786 5,168 4,322 3,950 PublicFixed Investment 8,593 9,835 7,686 5,453 3,925 3,256 Changesin Stocks (2051 738 (2,207) (3,773) 1,263 (809) DomesticSavings 22,299 12,285 15,793 9,867 16,338 9,277 et FactorIcome (7,250) (8,028) (8,943) (7,870) (7,129) (8,482) CurrentTransfers 1,460 780 1,608 2,029 1,536 1,739 RationalSavings 16,509 5,037 8,458 4,026 10,745 2,534 Source:Central Bank, INF, and IIRD staff nstimaten. November5, 1986 - 53 - Table2.6: BOLIVIA- OSSDOTIEStlC PROCT BY EXPENDITURE CATEDURY IN CONSTANTPRICES (SromthRates) 1981 1982 i983 194 1905 1lp -0.4 -5.6 -7.2 -2.4 -4.0 llt FactorInc., 10.7 11.4 -12.0 -9.4 19.0 GNP -1.1 -6.8 -6.8 -1.8 -5.6 ResourceSap lqowtsof Gondsand iFS 11.0 -40.9 -8.0 10.4 14.0 Exportsof Goodsand IFS -21.? -9.6 -14.3 32.9 -9.8 AvailableResourcs -6.5 0.5 -8.1 1.1 -7.2 Cousotion 9.4 -9.4 -2.4 -9.2 3.3 Private 14.3 -14.4 -4.4 -12.0 10.1 Sameralkvernmumt -14.1 23.4 6.4 1.9 -20.4 Ivestmnt -12.5 -26.1 -39.2 38.9 -32.7 PrivateFixed Invstment -48.3 23.7 -10.7 -16.4 -8.6 PublicFixed Inestment 14.5 -21.9 -29.1 -28.0 -17.0 Cban in Stocks Domtic Savings -44.9 28.6 -37.5 65.6 -43.2 ; NuetFactor nom 10.7 11.4 -12.0 -9.4 19.0 CurrentTransfers -46.6 106.0 26.2 -24.3 13.2 NationalSavings -69.5 67.9 -52.4 166.9 -76.4 Source:Table 2.7 November5 1986 - 54 - Table2.7: BOLIVIA- BROSS DONESTIC PRODUCT DYEXPENDITURE CATE6ORY INCURRENT PRICES (Aspercentage of BSP) 1980 1981 1982 1983 1984 1985 6or 100.0 100.0 100.0 100.0 100.0 100.0 NetFactor Incoe -5.9 -6.5 -7.7 -7.3 -6.6 -8.6 6NP 94.1 93.5 92.3 92.7 93.4 91.4 ResourceUap 3.9 -2.4 3.8 2.8 3.3 1.2 laportsofSoods and NFS -16.8 -18.7 -11.7 -11.6 -9.1 -17.6 ExportsofBoods and NFS 20.7 16.3 15.6 14.4 12.4 19.8 AvailableResources 103.9 97.6 103.8 102.8 103.3 101.2 Consumption 81.9 90.0 86.4 ?0.6 87.9 92.3 Private 67.9 77.9 70.6 72.5 66.2 76.7 Seneral6overnaent 14.0 12.1 15.9 18.1 21.7 15.6 Investunt 14.1 12.4 9.8 6.6 8.8 6.5 PrivateFixed Investeent 7.3 3.8 5.0 5.0 4.0 4.0 PublicFixed Investment 7.0 8.0 6.6 5.0 3.6 3.3 ChangesinStocks -0.2 0.6 -1.9 -3.5 1.2 -0.8 DomsticSavings 18.1 10.0 13.6 9.4 12.1 7.7 NetFactor Income -5.9 -6.5 -7.7 -7.3 -6.6 -8.6 CurrentTransfers 1.2 0.6 1.4 1.9 1.5 1.7 NationalSavings 13.4 4.2 7.4 4.0 6.9 0.8 Source:Table 2.7 November5,1986 - 55 - Table2.8: BOLIVIA- INPLICIT GDP DEfLATORS, 1990-0 119900100) 1910 l981 1992 1913 199 1915 __ ------__------ siP 100.0 124.4 335.0 1259.5 18557.62090940.4 NetFactor lco. 100.0 124.4 335.0 1258.5 18557.62139542.6 Sw 100.0 124.5 3M5.1 1239.1 19593.2209689.2 ResourceSap 100.0 122.4 330.4 1270.0 9392.2 990791.6 loportsof 6oods and NFS 100.0 124.4 335.6 1260.7 12887.02362621.5 Exportsof Goodsand NFS 100.0 124.7 334.3 1262.5 11727.62133510.5 AvailableResources 100.0 124.5 334.8 1258.8 17"8.7 2057I2.4 Consunption 100.0 124.4 334.8 1255.4 19M13.6212544.3 Private 100.0 124.4 334.8 1234.4 18747.72133937.1 BeneralBovernment 100.0 124.5 334.8 1259.2 21273.82085245.0 lnvestment 100.0 124.2 338.2 1298.2 18077.22140503.4 PrivateFixed Investment 100.0 125.8 338.5 1312.7 18078.32140632.9 PublicFixed Investeent 100.0 123.9 334.6 1249.7 18075.82140172.0 ChangesinStocks 100.0 118.0 326.6 1249.0 18077.72139902.2 DoiesticSavings 100.0 124.6 335.9 1289.6 14443.41749434.1 NetFactor Inomoe 100.0 124.4 335.0 1258.5 19557.6 2139.5 CurrentTransfers 100.0 124.4 335.0 1258.5 19557.6 2090.9 NationalSavings 100.0 127.1 331.8 1349.1 12626.4 677979.5 Source:Tables 2.6 and2.7 Noveaber5,196 - 56 - Table3.11 BDLIVIA- BALANCE OFPAYMENTS, 198085 (Nillionsof UU) 1980 1981 1982 1983I/ 18I 1905 1I TradeBalance 263.8 -63.0 250.2 16.0 232.9 71.5 Euports(FOB) 942.2 912.4 827.7 755.1 724.5 623.4 leports (CIF) 678.4 975.4 577.5 589.1 4l.6 551.9 balanceof FS -35.6 -47.0 -26.9 0.7 -18.0 -23.0 RKeipts 81.4 87.2 76.3 97.1 87.5 89.5 Paymnts 117.0 134.2 103.2 96.4 185.5 112.5 alance of Soodsand IFS 22B.2 -110.0 223.3 166.7 214.9 49.5 FactorServices (Net) -295.0 -395.3 -459.1 -411.0 -431.2 -410.4 Receipts 22.1 22.0 14.4 46.8 36.0 24.5 Interest 14.1 14.5 6.7 38.9 28.5 16.0 Others 9.0 7.5 7.7 7.9 7.5 8.5 Payments 317.1 417.3 473.5 457.8 467.2 434.9 Interest 265.5 348.4 412.0 341.9 361.3 336.6 Paid 261.0 331.2 290.5 298.3 9.1 162.6 Deferred& in Arrears 4.5 17.2 84.6 27.6 69.2 174.0 Capitalized 0.0 0.0 36.9 16.0 0.0 0.0 Others2/ 51.6 68.9 61.5 115.9 105.9 98.3 PrivateTransfers (Net) 12.7 13.3 16.7 40.2 21.8 14.5 blanceon Current kcount -54.1 -492.0 -219.1 -204.1 -194.5 -347.4 . - 57 1980 l981 1982 198311 19841/ 1905e/ Blance onCurrent ktount -54.1 -492.0-219.1 -204.1 -194.5 -347.4 ._--nfl-----. Official Transfers(net) 4b.8 26.3 28.8 66.0 66.7 65.5 DirectForeign Investment 43.9 75.6 31.0 6.9 7.0 10.0 NetOfficial I < 230.4 205.1-164.4 53.0 -174.5-235.3 Disbursements 466.1 454.3 210.9 507.5 159.8 108.7 Received 265.3 322.8 210.9 97.9 159.8 108.7 Exceptional 200.8 131.5 0.0 0.0 0.0 0.0 Changesin b*t STto NT 0.0 0.0 0.0 409.6 0.0 0.0 Amortizations 108.7 249.2 375.3 454.5 334.3 344.0 Paid 126.3 108.8 107.5 101.4 141.9 159.3 Dbt aiArrears 11.5 2R.6 64.7 9.1 20.8 83.4 DebtDeferred R financtd 47.9 111.8 203.1 344.0 163.6 101.3 ExceptionalFinancing 108.1 294.2 352.4 378.8 261.6 358.7 OtherLong-Term Capital -29.1 5.3 -14.7 -1.5 -1.2 -4.0 Receipts 3.8 10.4 0.0 1.1 0.0 0.0 Payments 32.9 5.1 14.7 2.6 1.2 4.0 ShortTer Capital(ot) -45.2 -98.9-147.5 -113.9 180.5 24.5 Receipts 19.3 14.0 125.4 279.7 568.5 56.4 Payments 64.5 102.9 272.9 393.6 308.0 31.9 Useof IMF Rlsources fNet), 62.5 -6.1 10.6 3.1 -25.5 -12.4 Errorsand Omissions -397.5-197.9 31.4 113.5 -10.8 184.9 ChangeinReserves (- increase)-95.8 178.4 91.5 -301.8-109.3 -44.5 NemoItems ReserveLevel (Bross) 204.2 205.7 235.8 244.0 491.9 el Estimate. 11 Preliminary 2/ Includespayments topetroleum companies. Source:Central Bank, Balance of PaymentsDivision, November6, 1986 , - ~~~- S< - 1 -58- Table3.2: BOLIVIA- NERCHAOISE EXPORTS ICIF) 1980-85 tNillionsof CurrentIas) 1980 1981 1982 1983 198419 85 e Ilinerls, &641.1556.0 419.3 347.3 364.0 263.8 l'& tilkict 238.8 265.9 237.3 175.5 190.8 133.9 2.7 0.0 0.0 0.0 0.0 0.0 :Antiny 11.8 14.1 6.7 6.3 1.9 2.3 C%1oys 12.4 6.8 3.5 3.4 2.7 3.0 cne6trates - lin Concentrated 139.3 77.2 41.0 32.4 57.0 52.7 Zinc 36.7 40.4 38.4 33.4 37.3 29.5 Cojiper ~~~~~~~3.54.4 3.1 3.0 1.8 1.7 Tungsten 47,4 43.0 33.8 20.0 18.9 10.3 Antimony 14.6 20.2 11.1 10.0 21.0 13.7 Silver 118.3 71.7 37.1 58.3 21.4 10.2 Lead ; 14.5 11.5 6.5 4.0 1.0 0.5 Disuth 0.0 0.0 0.0 0.0 0.0 0.0 Others 1.1 0.9 0.8 1.1 10.2 5.9 - roarbons:d 245.1 346.5 398.4 420.1 388.9 374.5 gaoline 22.6 3.3 4.5 4.9 0.1 0.1 Ntrl Saf 220.9 336.7 381.6 378.2 375.7 372.6 VoEpaan 1.6 3.1 5.9 3.7 2.3 0.9 ,,ta 0.1 3.4 6.4 4.0 2.4 0.9 CrudePetius 0.0 0.0 0.0 29.3 8.4 0.0 ,Agrk ltiYl Products: 117.7 51.3 45.3 39.5 24.6 25.9 ! XtteA',o: 0.9 0.0 0.0 0.0 0.0 0.0 51.2 5.7 8.1 12.3 6.6 1.8 >> 1/ ?fferincebetween CIF and FOB price of exports. 21 Non-factorservices include shipment, other transport, other goods,services and rent as it appearsin the Central Bankof Pulitvia'sbalance of paymets. Sources:Central Bank of dolivia November5, 1986 , ' & - 59 - Table3.3s BOLIVIA - NSRNNISE EXPORTS $CIF) 1990 (Nhllionsof1960 Us 8)' 1960 1991 1982 1963 1984 1985el Nineralss 641.1 661.9 593.2 49.2 489.6 381.3 Netals TinNetallic 236.8 314.6 313.4 227.4 262.4 196.6 Bisuth 2.7 0.0 0.0 0.0 0.0 0.0 Antimony 11.8 14.9 7.7 9.5 1.9 1.7 Alloys 12.4 9.0 5.5 5.4 4.9 5.8 rAncentfates TinConcentrated 139.3 92.5 54.3 42.1 78.2 74.3 Zinc 36.7 35.5 35.4 32.5 29.2 27.2 Copper 3.5 5.4 4.5 4.1 2.8 2.6 Tunesten 47.4 42.6 45.1 35.6 34.1 22.7 Antiomy 14.6 22.1 14.8 17.3 19.8 13.8 Silver 118.3 137.2 101.4 106.2 53.8 34.9 Lead 14.5 14.2 10.3 8.6 2.2 1.2 8ismuth Others 1.1 0.8 0.6 0.5 0.3 0.2 Hydrocarbons: 245.1 246.2 265.0 2U.3 253.1 241.0 Gastline 22.6 3.1 5.7 5.4 0.2 0.1 Natural uas 220.9 237.5 248.6 240.7 239.2 239.7 Propane 1.6 2.8 5.3 3.2 2.1 1.0 Butane 0.1 2.8 5.4 3.3 2.2 1.0 CrudePetroleum 0.0 0.0 0.0 31.7 9.5 0.0 AgriculturalProducts: 117.7 51.4 67.6 72.9 44. 49.4 Cotton 0.9 0.0 0.0 0.0 0.0 0.0 Sugar 51.2 9.7 18.5 24.7 9.9 3.1 Leather 4.9 4.9 6.8 2.7 2.5 3.7 Coffee 20.8 19.4 26.2 25.3 12.6 25.5 Castana 2.9 1.7 2.2 4.2 5.0 4.3 GMoa 4.7 2.6 4.3 6.9 5.9 3.9 beatand Cattle 1.3 0.9 0.7 0.8 1.0 0.6 Timber 31.1 12.2 8.9 8.4 8.0 8.1 RtherProducts: 32.2 21.3 20.2 16.2 8.2 14.7 Netalaechanicproducts 8.8 7.7 3.8 0.0 0.0 0.0 Artesanias 4.2 3.4 1.3 0.9 0.4 4.5 Other 19.2 10.3 15.2 17.3 7.9 10.2 Total NerchandiseExports (CIF) 1036.2 1007.8 946.1 864.7 795.9 687.1 Balanceof PaymentsAdjustments I/ 93.9 82.5 71.1 64.6 60.8 51.4 Total Nrchandise(FOB) 942.2 925.3 875.0 800.1 735.1 635.7 Non-FactorSrvics 21 81.4 86.8 77.0 100.6 92.3 93.7 Total Exportsand WFS 1023.6 1012.0 952.0 900.7 627.4 729.4 (e)estiated 1J Differencebumen CF andFOB price of expwts. IINindex usd to deflate. 2/ Non-factorsrvices includeshipment, other transpwt, othergoods, services andrent as it appiearsin the Central bnk of Bolivia'sbalance of paymts. Sorces: Centralbnk of Boliviaand IIF November5, 1986 - 60 - Table3.4 BOLIVIA- SERCNIEEXPORTS ICIF) 1980-85 (Price indices 1980i1OOl 1980 1981 1982 1983 1984 1985 Nineralss oetals Tin Metallic 100.0 84.5 75.7 77.2 72.7 66.1 Iisth 100.0 0.0 0.0 0.0 0.0 0.0 Antimony 100.0 94.9 86.0 66.4 97.7 131.6 Alloys 100.0 75.8 63.8 62.5 54.2 52.1 Concentrates Tin Concentrated 100.0 83.4 75.5 77.1 72.9 70.9 Zinc 100.0 113.9 108.3 102.8 127.8 109.3 Copper 100.0 81.3 68.8 72.9 64.6 64.6 TunstenR 100.0 100.8 74.9 56.1 55.6 45.4 Jbtitony 100.0 91.4 75.3 58.1 106.1 98.9 Silver 100.0 52.3 36.5 54.9 39.9 29.2 Lead 100.0 80.5 63.4 46.3 46.3 43.9 oiuth 100.0 0.0 0.0 0.0 0.0 0.0 Others 100.0 104.0 133.1 202.9 2934.4 2485.1 llydrKarbonst Hasoline 100.0 107.5 79.0 90.9 51.9 51.2 Natural Gas 100.0 141.7 153.5 157.1 157.1 155.5 Propane 100.0 110.9 111.0 116.1 107.3 94.8 Prtine 100.0 123.1 118.1 119.9 111.0 93.4 CrudePetroleum 100.0 0.0 0.0 92.5 88.5 0.0 AgriculturalProducts: Cotton 100.0 0.0 0.0 0.0 0.0 0.0 Sugar 100.0 58.3 43.5 49.8 67.2 56.5 Lather 100.0 104.7 46.5 30.7 30.4 38.0 Coffee 100.0 81.6 59.2 51.1 52.3 54.0 Castana 100.0 153.2 102.3 42.0 46.8 33.2 GoM 100.0 124.8 96.6 39.0 12.7 13.0 eat and Cattle 100.0 105.1 87.8 151.5 150.0 187.0 T3iber 100.0 147.0 130.6 92.9 75.0 71.5 OtherProducts: Netalmechanicproducts 100.0 104.4 129.6 0.0 0.0 0.0 Artesanias 100.0 141.3 83.9 71.0 39.3 6.7 Other 100.0 279.0 191.7 57.4 56.5 70.9 Total lerchandiseExports (CIF) 100.0 98.8 94.9 94.5 98.3 97.9 blanceof PaymentsAdiustmts 100.0 100.5 9.1 96.5 94.8 95.5 Total Nerchandise(FOB) 100.0 98.6 94.6 94.4 98.6 98.1 bN-FactwServices 100.0 100.5 99.1 96.5 94.8 9.5 Total Exportsand NlS 100.0 98.8 95.0 94.6 98.1 97.7 Swrcs: CentralDak November4, 1986 - 61 - Table3.5s EOLIVIA- NERCOINDISE INPORtS ICIF), 1990-35 (Millionsof US$) 1980 1981 I192 1993 1994 I995(e) ConsumerGoods 169.3 233.6 96.0 65.6 94.9 132.5 Durable 64.3 117.7 39.2 19.2 52.9 80.1 NonDurable 105.0 115.9 56.9 46.4 42.0 52.4 RawMaterials and Intermediate Goods 219.5 M.6 212.9 239.0 171.4 102.1 Fuel 1.7 13.9 9.0 4.1 1.5 2.2 ForAgriculture 11.2 14.7 7.3 11.2 17.5 14.3 For Industry 205.6 264.0 196.6 223.7 152.4 165.*6 CapitalBoods 274.1 384.1 234.1 265.5 216.8 231.8 Construction 31.9 49.3 35.5 43.3 31.7 33.1 ForAgriculture 13.6 20.4 5.1 7.3 13.5 13.0 ForIndustry 148.0 195.3 138.9 156.3 103.4 110.4 TransportandEquipment 80.6 119.1 54.6 58.6 68.2 74.5 Othereoods 1/ 3.5 6.0 11.1 6.6 5.4 5.5 Mon-registeredIm_ots 2/ 13.0 58.3 23.4 12.4 3.1 0.0 Total MorchadiseImports ICIF) 678.4 975.4 577.5 589.1 491.6 551.9 Freight andInsurance 104.0 147.7 81.5 93.1 79.3 89.1 Total OerchandiuImports IFOI) 574.4 827.7 496.0 496.0 412.3 462.8 Non-FactorServices 124.5 134.5 103.2 96.4 105.5 112.5 Total ImportsSoods and NFS 802.9 1109.9 610.7 685.5 597.1 664.4 to) estimuted 1/ Includeswheat and other governmentieports. 2/ Adjutmentfor non-registeredbut legal imports. Source: CentralDank of Dlivia nd NationalInstitute of Statistics. Noveber6, 1986 - 62 - Table3.63 0OLIVIA- MERCHANDISE IKPORTS, 1980-85 e/ 1980 1981 1982 1983 194 pl 1985*/ importPrice Indict (19N0 100) ConsumerGoods 100.0 93.6 84.9 85.6 91.3 87.1 Durable 100.0 100.5 "9. 96.5 9.8 95.5 Nan-durable 100.0 87.5 77.2 81.8 87.2 76.7 Raw aterials andintet- mEdiategoods 100.0 101.0 99.2 96.4 9.8 9 5.4 Fool 100.0 112.5 101.6 92.2 90.2 87.5 Otherintermediate goads 100.0 100.5 99.1 96.5 9.8 95.5 CapitalSoods 100.0 100.5 99.1 96.5 9.8 95.5 OtherGods 100.0 100.5 9.1 96.5 94.8 95.5 Total MerrchadiseImports (CIF) 100.0 98.9 96.5 95.1 94.1 93.3 Non-ResisteredImports 100 100.5 ".1 96.5 9.8 95.5 Freight and Insurance 100.0 100.5 99.1 96.5 94.8 95.5 TotalMerchandise Imports IFFB) 100.0 98.6 96.0 9.9 93.9 92.9 Non-factorServices 100.0 100.5 ".1 96.5 9.8 95.5 Total ImWrtskOods and NFS 10.0 9".1 %.8 95.3 94.2 93.7 Inports is Constant(180 US$dillions) Conmr oods 169.3 249.6 113.1 76.6 104.0 152.2 Drable 64.3 117.1 39.6 19.9 55.8 83.9 on-durable 105.0 132.5 73.5 56.7 48.2 68.3 RauMaterials and Inter- ediate pods 210.5 289.7 214.6 247.9 180.9 190.9 Fuel 1.7 12.4 8.9 4.4 1.7 2.5 Otherintermediate goods 216.0 277.3 205.8 243.4 179.2 188.4 Capital uoods 274.1 382.2 236.2 275.1 228.7 242.7 OtherBoods 3.5 6.8 11.2 6.8 5.7 5.8 uon-RegisteredImports 13.0 58.0 23.6 12.8 3.3 0.0 Total Merchandiseimports (CIF) 678.4 986.3 598.7 619.3 522.5 591.6 Freight ad Insurance 104.0 147.0 82.2 96.5 83.6 93.3 Total lerchadis Imowts(fF) 574.4 839.3 516.5 522.8 438.9 498.3 on-FactorServices 124.5 133.8 104.1 99.9 111.3 117.8 Total leportsboods nd IFS 802.9 1120.1 702.9 719.2 633.8 709.4 le) estimted. Ip) preliminry. Sowrce 18, Comdity Price Dat, andCentral antof blivia November4, 1986 - 63 - Table3.72 BOLIVIA - DIRECTION OFTRDE, 1990.85 (Percent)l 1980 1981 1982 1983 1984(p)1985(p) EIPORTS(t.i.f.) 100.0 100.0 100.0 100.0 100. 100.0 LatinAmerica Free Trade soKiation 36.7 42.5 51.8 52.5 52.7 60.6 Argentina 23.7 36.1 44.5 47.6 48.8 55.9 Brazil 3.5 1.3 2.2 1.6 1.0 0.7 Chile 4.5 0.8 1.2 1.0 0.9 1.6 AndeanCoron Narket 4.7 4.2 3.8 2.3 2.0 2.5 a.*.Peru 3.1 3.1 2.6 1.8 1.2 1.9 Colombia 0.9 0.6 0.7 0.5 0.6 0.6 Other 0.3 0.1 0.1 0.0 0.0 0.0 EuropeanComon NarketI2 17.6 16.5 11.6 14.0 17.2 11.6 Bermany(F.O.R.) 5.3 3.7 3.7 2.9 3.2 5.0 FraKe 4.3 2.5 1.7 1.9 0.7 1.2 Netherlands 4.4 7.3 4.0 6.0 9.7 3.2 Other 3.6 3.0 2.2 3.2 3.5 2.2 UnitedKingdom 6.9 3.9 3.5 2.2 5.2 8.9 U.S.A. 25.7 26.8 26.2 20.8 18.4 13.5 0.9 0.9 1.8 1.9 1.1 0.4 12.2 9.4 5.1 8.6 5.4 5.0 INPORTS(c.i.f.) 100.0 100.0 100.0 100.0 100.0 100.0 LatinAmerica Free Association 31.0 32.6 30.5 42.0 45.0 47.5 Argentina 10.6 9.9 13.3 16.6 14.5 15.0 Brazil 11.4 14.1 9.5 13.5 20.2 21.0 Chile 3.7 4.0 2.8 3.1 3.3 5.0 AndeanCommon Narket 4.5 3.7 3.1 3.8 5.7 5.5 o.u.Colombia 0.5 0.4 0.4 0.2 0.4 0.4 Peru 3.8 3.1 2.6 4.0 5.1 5.0 Other 0.8 0.9 1.8 5.0 1.3 1.0 EuropeanCmson NarketI2 16.1 14.6 13.2 12.2 13.2 12.6 Sermany(F.D.R.) 9.3 8.1 8.1 5.5 7.2 7.2 France 1.3 1.9 1.4 3.5 2.0 1.8 Netherlnds 2.0 1.7 1.2 1.3 1.7 1.7 Other 3.5 3.0 2.4 1.9 2.3 1.9 UnitedKin dan 6.0 4.8 4.0 3.4 2.8 2.0 U.S.A. 25.6 22.9 29.4 29.7 21.8 22.0 4 9.3 11.9 10.5 6.8 6.2 7.0 8oter 12.0 13.2 12.6 6.9 11.0 8.9 I/ Preliminarydatafor 1984 imports and 1985 imports and exports. AbsoluteA CIF values are taken for exportsand imports. 21 ExcludesU.K., Denmark and Ireland. SourcesCentral Dank of Bolivia, mission estieates. November4,1986 - 64 - Table4.1: OOLIVIA - SIMIIRY Of PUOLICSECTOR OPERATIONS, 1980-1985 (In millions of DolivianpM)os Prel. Est. 1980 1981 1982 1983 194 l98511 1. CentralAdministration Operation Currat revenue 12558.018018.1 22096.6 4476.1 593412.2 1930363 Ta revenue 10765.7 13686.219815.0 37413.0 552545.4 186937.0 Ofwhich transfers from: 3906.1 8352.6 6972.2 10155.3 160351.9 134218.4 on-financialpublic enterprises 381.7 541.9 6926.8 9857.7 160060.6 134218.4 local governaents 0.0 0.0 42.8 278.5 243.5 0.0 decentralizedagencies 24.4 3010.7 2.6 19.1 47.8 0.0 Nontaxrevenue 1792.3 4331.9 3081.6 11063.1 40866.0 6099.3 Currentexpenditure 18149.824625.9 75502.9 320221.7 4295050.0 280756.0 Of which:current transfers 3815.7 4919.7 9405.1 44730.8 1029115.9 56552.3 Toprivate nector 1477.4 2132.9 4092.3 22475.8 422657.7 18371.6 Tosocial securitr, institutions 510.8 1163.5 1592.3 6232.5 347610.1 11070.4 Todecentritlized inencies 1636.3 1500.9 3398.2 15414.1 251881.9 26588.4 Tolocal governments 60.3 0.0 0.0 0.0 0.0 0.0 Tononfinanciil public enterprises 97.0 77.7 0.0 0.0 1732.0 326 Tointernational organizations 26.9 44.1 17.4 169.2 5066.8 484.3 Tospecialized banks 7.0 0.6 304.9 439.2 167.4 0.0 Currentaccount surplus or deficit 1-) -5591.8-6607.8 -53406.3 -271752.6-3701637.8 -9519.7 Capitalrevenue and grants 0.0 0.0 1906.7 59037.5 12533.1 2900.4 CapitalExpenditure 3591.64721.3 7476.1 24151.6277028.9 43185.7 OWfVhic: capital transfers 978.5 1428.2 462.7 175.3 37642.6 0.0 Todecentralized agencies 724.9 1334.3346.7 151.3 34603.6 0.0 TOlocal governments 133.1 87.8 0.0 0.0 0.0 0.0 Tononfinancial public enterprises 120.5 6.1 116.0 1624.0 3039.0 0.0 Netlending 0.0 35.0 8.6 322.7 4202.4 0.0 Overallsurplus or deficit 1-) -9183.4-11364.1 -58914.3 -237189.4-3970336.0 -13600.0 Financing 9183.411364.1 58984.3 237189.4 3970336.0 136005.0 Externalfinancing (net) 5007.26350.2 2954.5 820.6 27085.9 4060.6 Internalfinancing (net) 3647.15016.5 56029.8 236368.8 3943250.1 131944.8 Ofwhich, banking systea lnet) 4307.7 4961.2 64081.0 233740.0 3977329.3 131944.9 other Inet) -660.6 155.3 -0851.2 2628.8 -34079.2 0.0 Short-termforeign loans 664.2 -2.6 0.0 0.0 0.0 0.0 /1 in billions Source: Ninistryof Finance,Central Bank of boliviaand Fund staff estimates. Novber 4,1986 - 65 - Table4.2: BOLIVIA- SUNNYRY OFPUBLIC SECTOR WERATI 1 (In millionsof Bolivianpesos) Prl. Est. 1900 1901 1982 1903 1994 19651 It.SoKial Security ICNS5) Operations CurrentRevenue 1444.2 3277.2 0174.0 21296.0 371309.4 3998.2 Socialsecurity contributions21 1305.6 3066.7 7198.3 18257.0371309.4 25498.2 Fr. CentralAdministration 510.B 1163.5 1592.3 6232.5 347610.1 11075.4 Froe decentralizedagencies ".4 274.5 156.1 44.2 0.0 0.0 FromdKcenaliverdenis 68.3 179.2 379.0 0.0 0.0 0.0 Fro nonfinancialpublic enterprises 203.7 554.9 923.5 1337.3 23699.3 144229. Fromprivate sector 433.4 894.7 4147.4 10643.0 0.0 0.0 Otherrevenue 138.6 210.5 975.7 3029.0 0.0 13500.0 Currontexpenditure 1399.1 2274.9 6044.021444.0 2927.2 36511.7 Of which: currenttransfers 438.3 1059.9 367.0 4932.0 68063.0 939.7 Toprivate sector 430.1 1059.5367.0 4932.0 683.0 839.7 Toabroad 0.2 0.4 0.0 0.0 0.0 0.0 Currentaccount surplus or deficit 1-) 45.1 1002.3 2130.0 -158.0 7592.2 2486.5 Capitalrevenue 20.0 36.6 67.0 0.0 0.0 0.0 Cital transfer s 0.0 0.0 0.0 0.0 0.0 0.0 FronCentral Bovernment 0.0 0.0 0.0 0.0 0.0 0.0 Fromother 0.0 0.0 0.0 0.0 0.0 0.0 Saleof assetsand other revenue 20.0 36.6 0.0 0.0 0.0 0.0 Capitalexpenditure 62.1 27.8 676.0 5454.0 75265.2 1245.1 Of iicb: capital transfers 0.0 0.0 0.0 0.0 0.0 0.0 lit lending 4.6 189.0 199.0 117.0 117.0 0.0 Orall surplusor deficit 1^) -1.6 922.1 1332.0-5729.0 0.0 1241.4 Financing -3.0 -1007.0-1326.6 5729.0 0.0 1241.4 Externalfinancing (net) -14.2 -14.0 2.7 -18.7 0.0 0.0 Internalfinancing (net) 11.2 -993.0-1329.3 5747.7 0.0 1241.4 Bankingsystem lnet) -0.2 -133.1 -181.3 361.0 0.0 1241.4 Other(net) 11.4 -59.9 -1148.0 5396.7 0.0 0.0 1/ in billions 21 Publicsector contributions exclude employee contributions of publicsector workers which are combined with employer contributionsof privatesector workers. Source:Ninistry of Finance,Central Bank of Bolivia,and Fund staff estimates. November4, 1986 - 66 - Table4.3: BOLIVIA- SUNNARY OFPUBLIC SECTOR OPERATIONS llnrillions of blivianpesos) pu!l. Est. 1980 1981 1982 1983 1984 19851/ III. OtherOecentralized Agencin Currentrevenue 2366.9 2701.8 6615.2 22755.2 251881.9 26591.4 Of uhichkcurrent transfers 1922.3 1760.9 3398.2 15414.1 251061.9 21958.4 Froa CentralAdministration 1636.3 1500.9 3398.2 15414.1 251681.9 26568.4 Fromlocal governments 86.8 259.9 0.0 0.0 0.0 0.0 Froenonfinancial public enterprise 199.2 0.0 0.0 0.0 0.0 0.0 Currentexpenditure 1903.2 2559.5 3482.7 18985.9 497327.3 57192.6 Of whichtcurrent transfers 134.5 313.7 171.6 73.3 47.8 0.0 ToCbntral Admdnistration 24.4 0.0 2.6 19.1 47.8 0.0 Tosocial security 89.4 274.5 156.1 44.2 0.0 0.0 Toprivate sector 5.0 39.2 12.9 10.0 0.0 0.0 Tolocal goernments 15.7 0.0 0.0 0.0 0.0 0.0 Currentmont surplus or deficit 4-) 463.7 142.3 3132.5 3769.3 -245445.4 -30604.2 Capital revenue 749.1 1449.1 346.7 151.3 36523.2 0.0 Of hich: capitaltransfers 737.4 1442.9 346.7 151.3 36523.2 0.0 fromCentral Administration 724.9 1334.3 346.7 151.3 34603.6 0.0 FromIocal governments 12.5 108.6 0.0 0.0 1919.6 0.0 Capitalexpenditure 574.8 1937.4 536.2 2624.3 36215.5 833.0 Sotlending 6.0 55.9 1.4 14.9 0.0 0.0 Overallsurplus or deficit H-) 632.0-404.8 2941.6 1281.4 -245137.7 -31437.2 Financing -632.6404.9 -2941.6 -1281.4 245137.7 31437.2 Externalfinancing (net) 269.0 129.3-197.9 579.1 8200.3 -847.8 Internalfinancinq (net) -901.6275.5 -2743.7 -1860.5 236937.4 32295.0 hankiagsyste lnet) 304.1 -136.5 1289.618061.0 236437.5 32285.0 Otherlnet) -1205.7 412.0 -4033.3-1991.5 -0.1 0.0 1/ in billions Source: linistry of Finance,Central Bank of Boliviaand Fund staff estimates. November4, 1996 - 67 - Table4.4: BOLIVIA- SUWARY OFPUBLIC SECTOR OPERATIONSt 198081985 (In oillions of bolivianpeos) pr,). Est. 1980 1981 1982 1983 1934 1985 / [V. SubtotalCentral 6overnment Operations (I + tl * Itl) Currentrevenme 13973.121058.2 31736.6 70907.4 617063.7 220958.8 Of nhich: currentpublic sector transfers 4473.9 6336.7 8M.1 11473.5 180034 148641.1 Fre local governMents 189.3 440.0 421.8 278.5 243.5 0.0 Fromnonfinancial public enterprises 4284.6 5896.7 7850.3 11195.0 183759.9 14641.1 Currentexpenditure 19191.226521.4 79880.4 338945.7 4488764.7 344796.5 Of wbich:current transfers 2127.6 3354.0 5794.5 28026.0 497686.9 27286.2 Toprivate sector 1920.5 3231.6 5472.2 27417.8 490720.7 26749.3 Tolocal governments 76.0 0 0 0 0 0 Tononfinancial public enterprises 97.0 77.7 0 0 1732.0 32.6 Tointernational organizations 27.1 44.1 17.4 169.0 S0.8 484.3 Tospecialize banito 7.0 0.6 304.9 439.2 167.4 0.0 Currentccount surplus of deficit -) -5218.1-5463.2 -48143.8 -268141.3-3871701.0 -123837.7 Capitalrevenue 44.2 151.41973.7 59037.5 14452.7 2900.4 Of which:capital transfersfrog local 12.5 109.6 0.0 0.0 1919.6 0.0 governments Capitalexpenditure 3503.6 5352.2 8341.6 32078.6 353906.0 45263.7 Ofwhich: capital transfers 253.6 93.9 116.0 1624.0 3039.0 0.0 Tolocal overnments 133.1 87.8 0.0 0.0 0.0 0.0 Tonon-financial public enterprises 120.5 6.1 116.0 1624.0 3039.0 0.0 Netlending 6.0 98.4 199.0 454.6 4319.4 0.0 Overallwplus of deficit 1-) -8683.5-10762.4 -54710.7 -241637.0-4215473.7 -1601.0 Financing 8019.3 10764.954710.7 241637.0 4215473.71601.0 Externalfinuacing (net) 5262.1 6465.5 2153.9 1381.0 35286.2 3212.7 Internalfinancing (net) 2757.2 4299.4 51956.8 240256.0 4180187.5 16298.3 Bankinsystem lnet) 4611.6 4591.665989.3 252tU.04214266.8 162988.3 Other(net) -1854.4 -2.2 -14032.5 -11906.0 -34079.3 0.0 Short-ter#forign loans 0 -2.6 0 0 0 0 1J 1.billions Sources:inistry of Finnce,Central Bank of Boliviaand Fund staff estimates. November4, 1986 - 68 - Table4,5: BOL4'It- 5UNHARYOFPUBLIC SECTOR OPERATIONS In millionsofBolivian pesos) Prel. Est. 1980 1981 1982 1983 1984 1985I/ Y.Local Governtment Operations rrbeqtrevenue 2499.72732.5 10890.0 22599 3 287682.414094.1 Ufwhtch: current transfers 1607.91597.0 8143.4 19957.6 287682.4 14094.1 FroF,Central Administration 60.3 0.0 0.0 0.0 0.0 0.0 Froe localqovernments 1531.91597.0 8143.4 19957.6 287682.4 0.0 Fromother decentralized agencies 15.7 0.0 0.0 0.0 0.0 14094.1 Currentexpenditure 1497.71329.8 4360.2 14304.2 463449.2 53296.7 Ofwhich: currenttransfers 196.3 594.0 321.8 278.5 243.5 0.0 Tosocial seturity 68.3 179.2 279.0 0.0 0.0 0.0 Toprivate sector 7.0 0.4 0.0 0.0 0.0 0.0 ToCentral Administration 34.2 0.0 42.8 278.5 243.5 0.0 Todecentralized agencies 86.8 260.8 0.0 0.0 0.0 0.0 Tononfinancial public enterprises 0.0 153.6 0.0 0.0 0.0 0.0 Currentanount surplus ordeficit (-1 1002.01402.7 6589.8 8295.1 -175766.8 -39202.6 Capitalrevenue 133.1 87.8 319.8 1179.516276.3 1871.8 Cfrwhich: capital transfers 133.1 87.8 125.2 890.4 0.0 0.0 FroeCentral Administration 133.1 87.8 125.2 890.4 0.0 0.0 iro nonfinancialpublicenterprises 0.0 0.0 0.0 0.0 0.0 0.0 Capitalexpenditure 935.7 1369.12903.0 5776.6 79717.1 1833.5 Ofwhich: capital transfers 12.5 108.6 0.0 0.0 1919.6 0.0 Netlending 0.0 5.6 518.6 0.1 0.0 0.0 Overallsurplus or deficit1-) 199.4 115.83468.0 3697.9 -239207.6 -39164.3 Financing -199.4-115.8 -3488.0 -3697.9 239207.6 39164.3 Externalfinancing (net) 221.3 99.8 198.2 436.5 10459.1-3302.0 Internalfinancing (net) -420.7-215.6 -3686.2 -4134.4 228748.5 4246.3 Bankingsystem (net) -372.5 -215.6 -1421.3 2697.0 228748.5 42466.3 OtherInet) -48.2 0.0 -2264.9 -6831.4 0.0 0.0 11in billions Source: Ninistryof Finance,Central Bank of Boliviaand Fund staff estimates. November4, 1996 - 69 - Table4.6: BOLIVIA - SUNNARY OFPUELIC SECTOR OPERATIONS (Inmillions ofBolivian pesos) Prel. Est. 1980 1981 1982 1983 1984 1985I/ VI. SubtotalBeneral Government Operations (IY + V) Currentrevenue 16207.523350.8 42264.0 93128.2 904502.6 235052.9 Ofwhich: current transfers 5816.510504.4 15993.7 31152.6 471442.3 162735.2 Fromnonfinancial public enterprises 5816.57493.7 15993.7 31152.6 471442.3 162735.2 Payents to sinking funds 0 3010.7 0.0 0.0 0.0 0.0 Currentexpenditure 20423.627411.2 83818.8 ,52974.4 4951970.4 398093.2 Ofwhichs current transfers 2058.63508.4 5794.5 28026.2 497686.9 27286.2 Toprivate sector 1927.53232.0 5472.2 27417.8 490720.7 26769.3 Tononfinancial public enterprises 97.0 231.3 0.0 0.0 1732.0 32.6 Tointernational woganizations 27.1 44.5 17.4 169.2 5066.8 484.3 Tospecialized banks 7.0 0.6 304.9 439.2 167.4 0.0 Currentaccount surplus ordeficit -) -4216.1-4060.4 -41554.0 -259846.2 -4047467,8 -163040.3 Capitalrevenue 31.7 42.8 2293.560217.0 28809.4 4772.2 Ofwhich: capital transfers froe nonfinancialpublicenterprises 0.0 0.0 0.0 0.0 0.0 0.0 Capitalexpenditure 4293.76524.9 11244.6 37855.2 431703.5 47097.2 Of which:capital transfersto nonfinancialpublicenterprises 120.5 6.1 116.0 1624.0 3039.0 0.0 Netlending 6.0 104.0 717.6 454.7 4319.4 0.0 Overallsurplus or deficit H-) -8484.1-10646.5 -51222.7 -237939.1 -4454681.3 -205365.3 Financing 8484.110646.5 51222.7 237939.1 4454681.3 205365.4 Exterunalfinancing (net) 5483.4 6565.2 2952.1 1817.5 45745.3 -89.2 Internalfinancing (net) 2336.5 4083.9 48270.6236121.6 4408936.0 205454.6 Bankingsyste (aet) 4239.1 4376.1 64568.0254859.0 4443015.3 205454.6 Other(net) -1902.6 -292.2-16297.4 -18737.4 -34079.3 0.0 Shwt-termforeign loans 664.2 -2.6 0.0 0.0 0.0 0.0 11in billions Source: Ninistryof Finance,Central Oank of Boliviaand Fund staff estimates. Noveber4, 191 - 70 - Table4.7J BOLIVIA- SUNNARY OFPUBLIC SECTOR OPERATIONS (Inmillions ofBolivian pesos) Prel. Est. 198O 1981 1982 1983 1984 19o511 VII. Operationsof NonfinancialState Enterprises Currentaccount wrplus or deficit before transfers 7301.4 10657.027784.5 48172.1 13362.0 206485.2 Nettransfers to generalgovernment -5816.5 -7493.7-15993.7 -31152.6 -471442.3 -162735.2 Currentaccount surplus or deficit 4-) 1484.9 3163.311790.8 17019.5 -458060.3 43750.0 Capitalrevenue 396.5 751.1 247.0 2249.0 32346.0 1601.4 of which: transfers fromgeneral government 120.5 6. 1 116.0 1624.0 3039.0 0.0 Capital expenditure 4420.0 4910.9 18016.7 40577.1 470974.8 32713.4 Netlending 139.2 316.8 0.0 0.0 0.0 1.0 Overallsurplus or deficit H-) -2677.8 -1313.3 -5978.9 -21308.6 -896709.1 12637.0 Financing 1449.9 1313.3 5978.9 21308.6 896709.1 -12637.3 Externalfinancing (net) -671.0 1008.2 -6747.4 -23092.8 01122.6 5220.7 Internal financing(net) 2530.2 537.0 16150.3 44401.4 495586.5 -17858.0 Bankingsystes lnet) 1987.1 1915.2 64446.0 182021.0 698704.0 -17858.0 Otherlunt) 543.1 -1378.2-48295.7 -137619.6 -203117.5 0.0 Short-teroforeign loans -409.3 -231.9 -3424.0 0.0 0.0 0.0 IJ in billions Soure: CentralBank of Boliviaand Fund staff estimates. Novenber4, 1986 -71 - Table4.89 B04IVIA- SUIAY OF PUBLIC SECTOR OPERMATIOIS (In uillions of blivian pesas) Prul. Est. 190 18"l 1982 1983 194 18 1t ___~~~~ --- ___-___--_----_--...... ,____ Vill.Operations p the ConsolidatedPublic Sector Unadjustedcurrent account wrplus or deficit (-) -281.2 497.2-2973.2 -2422.7 d50M8.1 -11925J.8 Adjustmentsfor earmarkeddeposits andsinking funds -189 0.0 G.0 0.0 0.0 0.0 Adjustedcurrent account surplus or deficit (-) -2731.2-916.1 -29763.2 -242826.7 -45055. 1 -119257.8 Capitalrevenue 307.7 787.3 2424.5 60842.0 58116.4 6373.5 Capitalexpenditure 8593.2 11429.229145.3 76808.3 899639.3 79810.6 llt lending 145.2 420.8 717.6 454.7 4319.4 1.0 Overallsurplus or deficit (-I -11161.9-11979.0 -57201.6 -259247.7-351390.4 -192695.9 Financing 11161.9 11978.757201.2 259247.7 5351390.4 192695.5 Externalfinancing (net) 640.3 757.5 -3795.3 -21275.3 446867.9 5131.5 Internalfinancinq foot) 4866.7 4639.7 64420.9280523.0 494522.5 187564.0 0ankingsyste lnet) 5639.4 4896.1129014.0 4360.0 5141719.3 107564.0 Other(net) -772.7 -256.4-64593.1 -156 .0 -2371%.8 0.0 Short-tersforeign loans 254.9 -234.5 -3424.4 0.0 0.0 0.0 1l in billions Source:Central Bank of Boliviaand Fund staff estimates. November4, 1986 7 - Table4.9: BOLIVIA - SBIMWY OFPU0LIC SECTOR OPERATIONS (h percentageofBOP) Prol. Eut. 1980 1981 1992 1993 1994 1985 s_ ------_ -w - -. - -_ - - - - ,_ - Vill.Operations ofthe Conuslidated PublicSetor Unadjustedcurrent account surplus ordeficit C-) -2.2 -0.6 -7.7 -17.9 -23.1 -5.6 Adjustmentsforearmarked deposits andsinking funds Q,O 0,0 0,0 0.0 0.0 0.0 Adjustedcurrent accountsurplus or deficit 4-) -2.2 -0.6 -7.7 -17.9 -23.1 -5.6 Capitalrevenue 0.2 0.5 0.6 4.5 0.3 0.3 Capital expenditure 7.0 7.5 7.5 5.7 4.6 3.1 W-'lending 0.1 0.3 0.2 0.0 0.0 0.0 Overallsurplus or deficit 1-) -9.0 -7.8 -14.7 -19.1 -27.4 -9.1 Financing 9.0 7.8 14.7 19.1 27.4 9.1 Externalfinancing (net) 4.9 4.9 -1.0 -1.6 2.3 0.2 Internal financing(net) 3.9 3.0 16.6 20.7 25.1 8.9 Bankingsystan Inet) 4.6 3,2 33.2 32.2 26.3 9.9 Other(net) -0.6 -0.2 -16.6 -11.5 -1.2 0.0 Short-termforeign ;oans 0.2 -0.2 -0.9 0.0 0.0 0.0 Source: CentralBank of Boliviaand Fund staff estim.ses. Noveaber5, 1986 TableS.1: 0BLIVIA- CMOSUIER PRICE INDEX t196 100) OITII 1967 1968 19 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 190 1981 1992 1983 1984 1985 195 Jaury 110.5 115.5 119.2 122.6 126.8 131.9 162.5 254.6 309.9 327.4 352.2 378.6 431.0 633.2 80.9 989.2 3U86.411S59.9 6M .6 41098237.0 Febray 112.9 115.4 118.5 123.0 126.3 131.0 162.8 286.1 3067 331.4 350.4 373.9 440.1 635.5 81S5 1148.1 4243.02209SI.9 34.6 4431439 IArch 106.5 115.4 117.7 123.0 126.6 131.0 165.9 291.3 308.6 326.2 343.0 374.1 43L 646.1 81.0 1241.7 4144.326761.9 2227.6 4434378. April 107.9 114.7 117.5 122.5 125.9 131.0 167.6 293.9 308.3 323.8 344.4 374.9 434.8 651.7 8n.9 1398.3 5147.343614.1 2417M.3 4906.4 Nay 1 1?r. 11b.3 1IB.4 123.2 126.2 131.0 168.9 295.9 309.9 326.2 344.7 372.1 445.8 671.4 901.4 1434.5 5617.064121.1 33 13.S 4631U6.9 JIne 11.; 117.7 119.3 124.1 128.2 132.1 169.4 302.6 315.4 331.1 357.3 38L60 453.7 708.5 902.6 1373.0 5796.866734.1 026.8 45315 J4ly I1J.e 110. ;19.1 125.1 13(.1 l33.0 175.3 303.5 322.5 333.7 361.0 400.9 467.4 710.9 915.6 1851.7 6310370184.4 1001752.2 492105766 Angst !I2.5 1.1. 1 12 S.13. 131.6 132.6 181.3 304.4 327.6 335.4 366.7 406.1 476.5 742.9 970.5 2182.8 9 W5.1130709.2 166&?727 45339 Setember 111.6 118.3 1212. 125.I 132.4 133.1 186.6 298.1 328.2 335.5 366.7 409.9 492.3 725.3 965.7 2607.8 93 21406.7 2t095.4 October 113.: 118.0 12i. 126.0v 11.7 134.0 203.3 295.8 327.3 336.4 372.2 42S.5 4ff.3 735.2 972.4 28.4 1043286371.1 25611"5.8 Noyber ;;4.3 1018. 12J.2 '20.9 Mt2. 145.1 206.5 302.6 326.3 33.0 373.9 425.T 511.7 743.6 971.1 0. 13018.223215.7 2641,705.3 Deceamer :14.8 116.8 122. 1t".6 131.A 161.9 219.5 305.0 323.4 341.2 376.9 427.7 622.1 771.0 964.8 3125.6 16392.4372.5 30611.6 Averagep11. 1:7.2 119.9 124.5 129.1 137.5 180.8 294.4 317.9 332.2 359.1 39b.5 474.5 698.6 923.1 2063.5 7750.3107098.2 12610.0 Percentq Pverage 1.5 5.5 L2 3.; 3.* o.5 31.5 62.9 8.0 4.5 8.1 10.4 19.7 47.2 32.1 1235 275.6 1281.3 1174.6 Yearend to yeareon 14.8 3.e . 4.1 3.3 22.8 35.6 39.0 6.0 5.5 10.5 13.5 45.4 23.9 25.1 2SD.5 328.5 2177.2 8170.5 SowCe: Natit:.1 IStItute oDStit.:StICSt lnember4, 1986 1" SQP0L I V IA Relief (meters) Climatic Zones ~~~ - ~~~~MoinRoods ~~Secondary Rod5000 AN6000OD 40 e n aoe ~~~~. ~~~~~~~~ Roadsads6000- AN6000(50madab~e 4000- 5000 00 -00 COOL(3D00-4S0Om.) ~~~~~~~~r ~~~~~ ~ ~ -. Rivers ~ ~ ~ 2000 -3000 TEMPERATE a~~~~~~~~~~~~~~~~~Rvr SBTROPICAL = Inteprtmnatio Boundaries 100 -1000 -~~*~~*RR 1000 2000 S-TROPICAL -~~~~~~~~~ D~~~~~~neprntmentlBoundaries B~~~8RAZIL ~~~~T~~flK:a -~~~~~-'~~~ -~~~* - ~~~~~ .~~~~~~~" C-.-. ARGENTINA ~ ~'~-'~-~ >- v'--~ - - pt.- ~ ¼:~~~~~~~~~~~~~~~~~~~~~~~I rocumV~ 4 rocu,m u-i -4~~~~~l L*1rI80LIVIAIkm ~~~~fr KILOMETERS ~ ~ ~ OUH MEIC ieahew Pro~p~1f~ byI me . !t,UOAgi-Ub $. o 0 ofA RO Ni N