Bolivia

Politics:

• Analysis

  Bolivia politics: Corruption scandals add to government's troubles

  The government of the president, Evo Morales, is facing growing pressure on multiple fronts. Two of the worst corruption scandals in six years of government have undermined the credibility of the government's anti-corruption credentials and confidence in the efficacy of judicial reforms. Moreover, manipulation to favour the government in a consultation on road-building through a national park has also led to strong domestic and international criticism. Although the government has managed to maintain governability, recent events could lead to a significant rise in public discontent in 2013.

  The number of scandals affecting the government has multiplied rapidly in the past month, and has included a public row between the president of the Legislative Assembly, Rebeca Delgado of the ruling Movimiento al Socialismo (MAS), and the minister of the interior, Carlos Romero. A war of words between the two over the role of the government in dealing with corruption scandals has exposed deep fissures in the unity of the MAS, which is threatening to derail Mr Morales's ability to use his strong majority in the legislature to rubber-stamp the government's legislative agenda. Social conflicts also appear to be on the rise, with grassroots movements ratcheting up their demands on various fronts. The most significant has been a demand for the removal of the MAS mayor from the city of El Alto (previously a bastion of government support) for failing to keep electoral promises and, to a lesser extent, over constant water shortages. A general complaint is about pervasive corruption across all levels of government.

  Deep-seated corruption

  Suggestions of a deep-seated culture of corruption in the ranks of the government have long been played down by the president and ministers, who tend to qualify any accusations as conspiracies by the opposition or by foreign governments. However, recent cases are getting harder to dismiss, as they have involved very high level officials. The latest and most significant scandal involves a network of judges, public prosecutors and government lawyers that conspired to extort money from those involved in high-profile cases in return for favourable treatment. The case has already led to the arrest of 12 officials, but there are growing calls for the resignation of three ministers: Mr Romero, Juan Ramon Quintana (the minister of the presidency and one of Mr Morales's closest associates) and the anti-corruption minister, Nardi Suxo. The latter is also accused of using her office to pursue politically-motivated prosecutions against major opposition figures and ignoring evidence of corruption within the government's ranks.

  In a separate case, a government order for 16 river vessels from a bankrupt Chinese shipbuilder came close to costing the state US$16m. Subsequent investigations discovered US$3m of an advance payment had been siphoned off into private accounts. Despite one arrest and the prosecution of one official, the government has sought to limit the damage by denying ministerial knowledge and responsibility.

  Strong-arm tactics

  A long-running saga involving government efforts to build a road through the Territorio Indigena y Parque Nacional Isiboro Secure (TIPNIS, a national park) is also causing growing problems for the government. In a bid to force the indigenous groups living in the TIPNIS to back down over their objections to the project, the Morales administration has carried out a census of all those that dwell in and around the park to prove that a majority of the affected population are in favour of the road. However, the consultation process has now been called into question by a number of actors after it was revealed that some communities linked to the coca grower federations that are deeply loyal to Mr Morales were included in the census, while others opposed to the road were excluded.

  In fact, the TIPNIS affair is uniting a number of organisations against the government-which is pressing ahead with legislation to allow the road to be built-including international human rights organisations, the Catholic Church, indigenous representative groups and environmental organisations. Even the Organisation of American States (OAS) has voiced concern over the government's methods used to impose the project. Resistance is now likely to grow and result in protests, road blockades and clashes with pro-government social movements, potentially leading to serious episodes of social unrest.

  A challenging 2013

  Combined, all these developments will prove challenging to Mr Morales, who has seen his popularity swing sharply in the past two years, in line with the severity of social conflicts and corruption scandals. The president's popularity reached a low of 30% in early 2011 as the TIPNIS conflict first came to light (combined with protests over fuel costs and wages), but has since risen to 60% in October 2012, partly as social conflicts abated in the third quarter of the year. The recent troubles that now beset the government, however, are likely to take a toll on the president's credibility and popularity. In addition, Mr Morales's tendency to maintain his ministers despite corruption allegations will almost certainly harm the government's ability to defuse conflict and negotiate with protesting groups.

  Mr Morales need to tread carefully in the next 12 months, as electoral considerations will gradually begin to dominate the political agenda. In anticipation of the next election in December 2014, he will try to seek a constitutional ruling that will allow him to seek re-election-there is currently a constitutional bar on three consecutive terms. Although Mr Morales is likely to gain judicial backing to run (given that most courts are packed with judges close to the government), the issue could be a trigger for much wider social discontent. Therefore, Mr Morales will have to work hard to restore his government's credibility if he is to have a chance of competing for a third term.

  December 18, 2012

• Background

  Bolivia: Key figures

  Evo Morales

  Mr Morales, the leader of the leftist Movimiento al Socialismo (MAS), became the first indigenous president of Bolivia on January 22nd 2006. He rose to prominence in the mid-1990s as the leader of a labour union movement defending the rights of coca growers against US-backed efforts to eradicate the crop in lowland areas. He is a strong opponent of orthodox free-market policies. He has managed to capitalise on resentment towards privatisation and foreign investors to roll back liberal market reforms in some areas and adopt a programme of renationalising privatised industries.

  Alvaro Garcia Linera

  Before being appointed as vice-president, Mr Garcia Linera was sociology professor at the public university in the seat of government, La Paz, and is a long-standing ideologue of the left. He became one of Mr Morales's main advisers in opposition and a spokesman for social protest movements. An erudite campaigner against liberal economic reforms, he provides the MAS with an articulate intellectual dimension that helped to boost the party's credibility and broaden its appeal.

  Jorge Quiroga Ramirez

  A conservative, US-educated technocrat, Mr Quiroga founded and leads Poder Democratico Social (Podemos), the second-largest bloc in Congress (the legislature), and is in effect the leader of the opposition, although he has no seat in Congress. Mr Quiroga served as vice-president in 1997-2001 and as interim president and leader of the nationalist-rightist Accion Democratica Nacionalista (ADN) in 2001-02. The presidency had passed to Mr Quiroga after the illness and subsequent death of the ADN's founder and former president, General Banzer.

  Samuel Doria Medina

  An industrialist and former vice-presidential candidate for the Movimiento de la Izquierda Revolucionaria (MIR), he formed the Frente de Unidad Nacional (UN) in 2004. He has sought to attract supporters from other centre-right and populist parties in decline, but is hampered by his long association with the MIR and its reputation for opportunism and corruption. He participated as an elected representative in the Asamblea Constituyente (2006-07) to draft a new constitution, but was sharply critical of the process. The UN holds the third-largest number of seats in Congress, but lacks cohesion as a political force.

  Democracy index (for methodology, see Appendix)

  The Economist Intelligence Unit's 2008 democracy index ranks Bolivia 75th out of 167 countries, putting it among the 52 countries considered "flawed democracies". Bolivia is one of 18 "flawed democracies" in Latin America and is ranked near the lower end of South American countries ahead of only Ecuador, Venezuela and Guyana. (Ecuador and Venezuela are considered "flawed regimes" due to low scores in Political culture and Civil liberties.) Among the Andean Community, Bolivia is ranked behind Colombia (62) and Peru (74) which are also considered "flawed democracies".

  Bolivia's index score reflects the political instability of the last decade, which saw two presidents resign from office, as well as a historical distrust of politicians owing to corruption and ineffectiveness. Nevertheless, Bolivia was one of 11 Latin American countries to increase their rankings in the past two years. In 2008 Bolivia's index score increased slightly from 2006 mainly owing to improvements in Political participation and Political culture scores (the last presidential elections had the highest turnout since the restoration of democracy). Bolivia's scores on Electoral process, Government functioning, Political participation and Civil liberties are all near the regional averages; however, Civil liberties scores have heavily declined since 2006 (from 13.5 to 7.94). Despite increased involvement from historically marginalised indigenous populations, scores are still quite low for Political culture. The low scores on political measures likely reflect the weakness of political parties and democratic institutions.

  Democracy index
  	Overall score	Overall rank	Electoral process	Government functioning	Political participation	Political culture	Civil liberties	Regime type
  Bolivia	6.15	75	8.33	5.71	5.00	3.75	7.94	Flawed democracy
  Overall and component scores are on a scale of 0 to 10; overall rank is out of 167 countries.

  Download text file (csv format)

  July 29, 2008

• Structure

  Bolivia: Political structure

  Official name

  The Plurinational State of Bolivia

  Form of state

  Unitary Social State

  The executive

  Directly elected president; serves for five years and appoints a cabinet

  Head of state

  Elected president

  National legislature

  Bicameral Congress: 36-member Senate (the upper house), nine departments, each elects three senators; 130-member Chamber of Deputies (the lower house), one-half of which is directly elected, the other indirectly elected through a system of party nominations; presidential and legislative elections are held every five years

  Regional administration

  Each department has a prefect and a departmental legislature, whose members are elected by municipal councillors. Departments are divided into 94 provinces; local government comprises 327 municipalities, elections for which are held every five years

  Legal system

  Each department has its own courts; the Supreme Court is at the apex

  National elections

  Next presidential, legislative and municipal elections: December 2014

  National government

  The governmentis led by the president, Juan Evo Morales, the leader of the Movimiento al Socialismo (MAS) and Bolivia's first indigenous head of state

  Main political organisations

  MAS; Plan Progreso para Bolivia-Convergencia Nacional (PPB-CN); Frente de Unidad Nacional (UN); Alianza Social (AS); Movimiento Sin Miedo (MSM)

  Key ministers

  President: Juan Evo Morales

  Vice-president: Álvaro García Linera

  Autonomies: Claudia Peña

  Communication: Amanda Dávila

  Culture: Pablo Gruox

  Defence: Rubén Saavedra

  Defender of the State: Elizabeth Arismendi

  Development planning: Elba Caro

  Economy & public finance: Luis Alberto Arce

  Education: Roberto Aguilar

  Environment & water: Vacant

  Foreign affairs: David Choquehuanca

  Health & sports: Juan Carlos Calvimontes

  Hydrocarbons & energy: Juan José Hernando Sosa

  Institutional transparency: Nardi Suxo

  Interior: Carlos Romero

  Justice: Juan Ramon Quintana

  Labour & employment: Daniel Santalla Tórrez

  Mining: Mario Virreyra

  Presidency: Carlos Romero

  Production & development: Ana Teresa Morales

  Public works & services: Arturo Vladimir Sánchez

  Rural development & land: Nemesia Achacollo

  Acting Central Bank president

  Marcelo Zabalaga

  December 05, 2012

• Outlook

  Bolivia: Key developments

  Outlook for 2013-17

  • The inability of the left-wing president, Evo Morales, to satisfy the rising demands of diverse social groups will fuel public discontent, but political instability will be contained by continued high social spending.
  • Although he is currently barred from standing, Mr Morales is likely to seek constitutional approval to run for a third term in 2014. Given the lack of a strong opposition, he is likely to win.
  • After an estimated expansion of 5% in 2012, GDP growth will moderate, but at an annual average of 4.5% in 2013-17 it will remain strong, supported by continued growth in domestic demand and rising natural-gas production.
  • Stringent rules on foreign ownership and profit repatriation, widespread corruption and a weak judicial system will impair the business environment and limit foreign and domestic private-sector participation.
  • Assuming that there will be no prolonged or sharp fall in gas and oil prices, Bolivia's non-financial public sector (NFPS) will stay in surplus throughout the forecast period, even as public expenditure remains high.
  • Inflation will rise in 2013-14 (after falling to an annual average of 4.5% in 2012), as high public spending puts upward pressure on prices. However, continued fuel subsidies will contain price expectations in the medium term.
  • The Banco Central de Bolivia (the Central Bank) has kept the currency fixed in 2012, but it will resume its policy of appreciation in the medium term, bringing the boliviano to Bs6.44:US$1 by end-2017.
  • The current-account surplus will narrow to an average of 3.9% of GDP in 2013-17, from an average of 5.6% of GDP in 2008-12, as import spending increases sharply on the back of rising domestic demand.

  Review

  • Bolivia's controversial constitutional tribunal demonstrated a degree of independence from the executive when it ruled in late October that a vaguely defined crime of "improper use of public office" was unconstitutional.
  • In mid-November the Morales administration presented a radical financial services reform bill for debate in Congress, which will significantly increase state control over the banking sector.
  • The sovereign placed US$500m of ten-year debt at low yield; the placement was oversubscribed threefold. It was the first bond issuance for 80 years.
  • Bolivia's monthly natural-gas exports to Argentina and Brazil continue to increase and have repeatedly broken records in 2012, rising above 1.6bn cubic metres in September to an average of 54m cubic metres/day.

  December 05, 2012

Economy:

• Background

  Bolivia: Economic background

  Gross domestic product by sector
  (% of GDP)
  	2003	2004	2005	2006	2007
  Agriculture	16.4	15.9	15.9	15.8	15.0
  Industry	33.7	34.6	35.1	35.8	36.4
  Mining & hydrocarbons	10.4	11.0	11.8	11.9	12.1
  Construction	3.0	2.9	3.0	3.1	3.3
  Electricity, gas & water supply	2.2	2.2	2.2	2.2	2.1
  Manufacturing	18.1	18.4	18.1	18.7	18.8
  Services	53.3	52.6	52.2	51.7	51.7
  Source: Economist Intelligence Unit

  Download text file (csv format)

  July 29, 2008

• Structure

  Bolivia: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 05, 2012

• Outlook

  Bolivia: Country outlook

  Bolivia: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: With control of all the organs of the state, the leftist-populist president, Evo Morales of the ruling Movimiento al Socialismo (MAS), will continue to pursue policies to transform Bolivia's institutional and economic framework, in compliance with the 2009 constitution he promoted during his first term (2006-10). However, widespread public discontent, reflecting voter fatigue and frustration over the government's slow progress on decentralising the state and tackling corruption and drug-trafficking, will prove a major obstacle to these efforts. Divergent interests among the social movements that make up the MAS (which has an unstable two-thirds majority in the bicameral legislature), including trade unions and indigenous organisations, will also keep party cohesion under threat. In this context, policymaking will become more ineffective, as it will be increasingly difficult for Mr Morales to please all MAS supporters. Moreover, bureaucratic inefficiencies and persistent corruption across all levels will constrain government effectiveness and undermine the business environment. Governability will also be hampered by growing security problems. Although Bolivia will continue to have a better security situation than many countries in Latin America, international drugs cartels are establishing a growing presence in the country, and the security forces are poorly trained and badly paid; this is likely to lead to rising crime in 2013-17.

  ELECTION WATCH: The next presidential, legislative and municipal elections are scheduled for December 2014. So far, Bolivia's fragmented and weak opposition has failed to put together a coherent electoral strategy and it is unlikely to agree on a unity candidate for president. The divided nature of the opposition stems from divergent interests and a lack of nationwide appeal, as most opposition parties enjoy only regional support along geographic lines (espousing lowland interests against those of the highlands, for example, or vice versa), in contrast to the MAS. Potential opposition presidential candidates include Juan del Granado--the former mayor (2000-10) of the capital, La Paz, and the leader of the leftist Movimiento Sin Miedo, who enjoys growing support in urban areas--and the former minister of the economy and public finance (and also a former presidential candidate), Samuel Doria Medina, of the right-wing Frente de Unidad Nacional, who derives his support from lowland regions.

  INTERNATIONAL RELATIONS: The government's international strategy will revolve around three main issues: focusing attention on and building support for international recognition for the consumption of coca leaves for traditional use; building support for Cuba and Venezuela (both allies of Bolivia) in international forums; and continuing to support long-running claims against Chile over sovereign access to the Pacific coast and the use of water resources along the countries' border. The first two of these issues will continue to cause some tension with the US, which will be aggravated by Mr Morales's anti-US rhetoric. However, the relationship between the two governments has improved in the past year and there is a moderate possibility that diplomatic ties will be restored in the medium term. In contrast, hostility towards Chile is expected to grow in 2013-17, especially as Bolivia steps up its efforts to take its sea-access claim to the International Court of Justice in The Hague. Bolivia will seek to maintain good commercial relations with Brazil and Argentina, the main destinations of its natural-gas exports. However, there will be tensions with both countries, as Bolivia will remain wary of Brazil's commercial interest in potentially controversial infrastructure projects (such as in the Tipnis, a protected area) and of Argentina's rising trade protectionism.

  POLICY TRENDS: The administration will continue its long-held policy to put in place ambitious social and infrastructure programmes (with the aid of sizeable fiscal resources) to tackle Bolivia's development needs, while seeking to expand the state's role in key economic sectors. The latter component of Mr Morales's strategy has been increasingly evident in the past year, with the government taking over several projects, including in mining and electricity, arguing that the private sector has failed to make the necessary investment. The government now also wants radically to increase the state's presence in the financial system via a massive increase in regulation (although stopping short of nationalisation). Overall, the state's lack of experience in industrial and financial management, a weak institutional framework and disputes among local interest groups mean that state-run industries and programmes will be plagued by inefficiencies and delays in 2013-17, while interference in the financial sector could lead to severe distortion in the macroeconomic framework.

  ECONOMIC GROWTH: A dynamic domestic market and expanding natural-gas production will support strong GDP growth during the outlook period. After an estimated 5% expansion in 2012, the Economist Intelligence Unit expects Bolivia's economy to average healthy annual growth of 4.8% in 2013-14, before losing some momentum in 2015-17 as a consequence of cyclical factors and lower growth in fiscal spending. Although global volatility is set to persist, Bolivia will be partly cushioned by continued demand for its natural gas from its main customers (Brazil and Argentina), which will sustain domestic demand growth. Nevertheless, a poor business environment and a low-skilled workforce will prevent sustained gains in productivity, limiting the country's medium-term growth potential.

  INFLATION: Base effects and lower prices for certain commodities have kept inflation under control in 2012--at an estimated average of 4.5%, down from 9.9% in 2011--but high global food prices and buoyant public spending will lead to a gradual acceleration in inflation in 2013-14, to an annual average of 6.1%. A moderation in fiscal spending and improvements in monetary policy management will lead to gradual disinflation in 2015-17, with an annual average inflation rate of 5.6%. Our forecast assumes that price expectations will remain contained, notably because there will be no adjustments to fuel prices--the government recently tried to cut fuel tax benefits but backed down after social protests. Moreover, although domestic supply bottlenecks and wage rises will remain sources of inflationary pressures in 2013-17, they will be partly offset by a strong boliviano and the government's continued willingness to control some food prices. However, there is some risk that new strikes and domestic food shortages (resulting from price controls and adverse weather) could exert greater pressure on inflation than we currently expect.

  EXCHANGE RATES: We expect the Banco Central de Bolivia (BCB, the Central Bank) to keep its policy of managed appreciation on hold in the remainder of 2012, ensuring that the currency peg remains at Bs6.96:US$1. However, with limited risks of contagion from the continuing euro zone crisis, and with price pressures set to rise in the next 12 months, we expect the BCB to return to a strengthening policy in the medium term, bringing the boliviano to Bs6.9:US$1 by end-2013. Despite concerns over a loss of export competitiveness in non-energy sectors--the trade-weighted real effective exchange rate is almost 25% stronger than its ten-year average--the BCB is likely to continue to allow currency appreciation in 2014-17, as it pursues a policy of a strong and stable boliviano to reduce import costs and to help to anchor inflation. We expect the exchange rate to reach Bs6.44:US$1 by end-2017. Very large foreign reserves levels (equivalent to an average of 13.6 months of import cover in 2013-17) and continuing comfortable current-account surpluses will support the currency.

  EXTERNAL SECTOR: Bolivia will maintain a sound external position, with the current-account balance posting a surplus averaging 3.9% of GDP in 2013-17, although this is below the average of 5.5% of GDP in 2007-12. The trade surplus will be driven largely by growing hydrocarbons production and exports (which will account for more than half of total exports throughout the outlook period), increased refining of oil and metals, and sustained high prices for non-food commodities. However, rising imports and export restrictions for some agricultural products will keep the trade surplus at 7% of GDP in 2013-17, below the peak levels posted in 2006-08 (when it averaged 10.2% of GDP). The trade surplus will be insufficient to offset the traditionally large services and income deficits (reflecting structural constraints), which will average 7.4% of GDP annually in the outlook period. We expect the transfers surplus to fall gradually to 4% of GDP in 2017 (from 4.9% of GDP in 2012), reflecting weaker remittances growth from countries such as Spain.

  December 07, 2012

• Forecast

  Bolivia: 5-year forecast summary

  Outlook for 2013-17: Forecast summary

  Forecast summary
  (% unless otherwise indicated)
  	2012a	2013b	2014b	2015b	2016b	2017b
  Real GDP growth	5.0	4.8	4.8	4.3	4.4	4.4
  Gross agricultural production growth	2.8	3.0	2.8	3.3	3.5	3.1
  Consumer price inflation (av)	4.5	5.5	6.6	5.5	5.8	5.6
  Consumer price inflation (end-period)	4.8	6.3	6.0	5.7	5.9	5.8
  Commercial bank prime lending rate	11.2	11.3	12.0	12.4	12.7	13.4
  NFPS balance (% of GDP)	2.0	0.9	0.2	0.6	0.8	0.9
  Exports of goods fob (US$ bn)	10.0	11.6	13.7	16.3	19.4	23.2
  Imports of goods fob (US$ bn)	8.2	9.7	11.4	13.6	16.5	19.8
  Current-account balance (US$ bn)	1.2	1.1	1.4	1.5	1.5	1.8
  Current-account balance (% of GDP)	4.7	3.9	4.2	4.1	3.5	3.9
  External debt (year-end; US$ bn)	5.6	5.8	5.9	6.0	6.2	6.3
  Exchange rate Bs:US$ (av)	6.96	6.92	6.86	6.72	6.61	6.50
  Exchange rate Bs:€ (av)	8.94	8.73	8.59	8.41	8.33	8.18
  Exchange rate Bs:US$ (end-period)	6.96	6.90	6.79	6.66	6.55	6.44
  Exchange rate Bs:SDR (end-period)	10.76	10.45	10.17	10.07	9.81	9.64
  a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

  Download the numbers in Excel

  Download text file (csv format)

  December 05, 2012

View detailed map

Country Briefing

Land area

1.1m sq km

Population

10.4m (official estimate; 2010)

Main towns

Population in '000 (official estimates; 2007)

Santa Cruz: 1,506

Oruro: 217

La Paz (administrative capital): 835

Sucre (constitutional capital): 265

El Alto: 891

Tarija: 183

Cochabamba: 603

Potosí: 152

Climate

Tropical below around 1,500 metres, cool above around 3,500 metres. Examples: Santa Cruz (altitude 416 metres), mean temperature 25.4°C, average annual rainfall 1,413 mm; Cochabamba (altitude 2,558 metres), mean temperature 15.7°C, average annual rainfall 483 mm; El Alto (altitude 4,103 metres), mean temperature 8.5°C, average annual rainfall 603 mm

Weather in La Paz (altitude 3,640 metres)

Mean temperature 11.2°C; average annual precipitation 512 mm; hottest month, November, 6-19°C (average daily minimum and maximum); coldest month, July, 1-17°C; driest month, June, 8 mm average monthly rainfall; wettest month, January, 140 mm average monthly rainfall

Language

Spanish (spoken by 87% of population); Quechua (34%); Aymara (24%); and other minor indigenous languages

Measures

Metric system; also local units including; 1 libra = 1 lb or 450 g; 1 aroba = 25 lb or 11.4 kg; 1 quintal = 100 lb or 45.5 kg

Currency

Boliviano (Bs) = 100 centavos; average exchange rates in 2010: Bs7.07:US$1; Bs9.37:€1

Time

4 hours behind GMT

Public holidays

New Year (January 1st); Carnival (the two days before Ash Wednesday); Good Friday; Labour Day; Corpus Christi; July 16th (La Paz); Independence Day (August 6th); September 14th (Cochabamba); September 24th (Santa Cruz); All Saints' Day; Christmas (December 25th). Public holidays not fixed by the religious calendar, such as Labour Day, now fall on the nearest Monday; some establishments close on days either side of public holidays; additional local holidays and fiestas (festivals)

March 01, 2012