ReportNo.64SS-BO UpdatingEconomic Memorandum on Bolivia Public Disclosure Authorized December15,, 1986 Latin Americaand the CaribbeanRegion Country ProgramsDepartment II FOR OFFICIALUSE ONLY SF , .bA%,,<S1¢s,r.-.-r ^. v.... ~s<.*-_-_ Public Disclosure Authorized Public Disclosure Authorized : 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 (IBRD16591) 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 (per 1000live 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 Per capitaprotein 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