Bolivia

Politics:

• Analysis

  Bolivia politics: Quick View - A post-Chávez era heralds little change for

  Event

  The death on March 5th of the Venezuelan president, Hugo Chávez, will leave Bolivia more politically isolated, but will have little impact on policy or the economy.

  Analysis

  The death of Mr Chávez has been deeply felt by Bolivia's left-wing president, Evo Morales, and his entourage. Venezuelan support for Mr Morales and the ruling Movimiento al Socialismo (MAS) extends back a decade, and the encouragement and financial support that flowed from Mr Chávez was critical to the rise of the MAS. Venezuela, with Cuban assistance, was instrumental in helping the highly inexperienced government of Mr Morales in its early days to build its governing capacity, its popular support, and its ability to face down Bolivia's traditional political elites when an orchestrated revolt by eastern lowland departments gathered force in 2008.

  However, with Mr Morales now more than halfway through a second term in office and with the opposition routed and in disarray, the need for continued strategic support from Venezuela has waned. Unlike other countries that have benefited from Venezuelan largesse, Bolivia has not needed major financial support. Windfall earnings from consecutive years of booming commodities demand have kept state coffers filled and the fiscal accounts in surplus, with foreign reserves rising steadily (they now represent close to 50% of GDP).

  Moreover, economic ties with Venezuela remained weak, as many of Mr Chávez's promises of increased investment never materialised. Bolivia's bilateral debt with Venezuela amounted to only US$160m at the end of November 2012 (the latest available data). While this represents 25% of total medium- and long-term bilateral debt, it represents only 3.9% of Bolivia's total external stock of debt. The large majority of this debt has arisen from oil imports that are paid for at a later date, but the state oil company, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), has stated that it has contingency plans in place for any sudden end to subsidised oil imports from Venezuela.

  More important to Bolivia has been Venezuela's growing importance as an export market for value-added products such as clothing and footwear. Total exports to Venezuela grew to US$321m in 2012 (a 10.5% year-on-year increase). By more than just political affinity, Bolivian exports are likely to suffer from a sharp slowdown in economic activity in Venezuela in 2013.

  March 14, 2013

• 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: José Antonio Zamora Gutiérrez

  Foreign affairs: David Choquehuanca

  Health & sports: Juan Carlos Calvimontes

  Hydrocarbons & energy: Juan José Hernando Sosa

  Institutional transparency: Nardi Suxo

  Interior: Carlos Romero

  Justice: Cecilia Ayllón

  Labour & employment: Daniel Santalla Tórrez

  Mining: Mario Virreyra

  Presidency: Juan Ramón Quintana

  Production & development: Ana Teresa Morales

  Public works & services: Arturo Vladimir Sánchez

  Rural development & land: Nemesia Achacollo

  Acting Central Bank president

  Marcelo Zabalaga

  March 05, 2013

• 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. Provided this happens, and 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 4.6% 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.
  • 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.
  • Despite strong growth, continued fuel subsidies will contain price expectations, keeping inflation at an annual average of 5.4% in 2013-17.
  • The Banco Central de Bolivia (BCB, the Central Bank) kept the currency fixed in 2012, but it will resume its policy of managed appreciation later in 2013, bringing the boliviano to Bs6.41:US$1 by end-2017.
  • The current-account surplus will narrow to an average 4% of GDP in 2013-17, from an average of 6.3% of GDP in 2008-12, but will still drive a further accumulation of foreign reserves, supporting Bolivia's external position.

  Review

  • Preliminary census results showed significant changes in demographic distribution among the regions, which are set to have important political implications in the short and medium term.
  • On January 20th a new opposition front led by a former judge, Carmelo Lens, won a solid 52.3% of the vote against 44.4% for Mr Morales's candidate, Jessica Jordan, for the governorship of Beni state.
  • Bolivia's ranking in the Economist Intelligence Unit's 2012 Democracy Index remained broadly stable. The country remains a "hybrid regime".
  • Strong economic growth and large public transfers are having a positive effect on consumer confidence, with the majority of Bolivians classifying their economic situation at end-2012 as "good" or "improving".
  • A sharp rise in education costs at the start of the academic year pushed inflation up to 4.9% in January.

  March 05, 2013

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

  
  

  

  March 05, 2013

• Outlook

  Bolivia: Country outlook

  Bolivia: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: 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 that he promoted. However, growing public discontent, reflecting voter fatigue and frustration over the government's slow progress on decentralising the state, 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 of the administration will constrain government effectiveness and undermine the business environment. Governability will also be hampered by growing security problems. Although Bolivia's security situation will remain better than that of many Latin American countries, international drug cartels are establishing a growing presence in the country. This, coupled with poorly trained and badly paid security forces, is likely to lead to rising crime in 2013-17.

  ELECTION WATCH: The next presidential, legislative and municipal elections are scheduled for December 2014. Although he is currently barred from standing, Mr Morales is likely to seek constitutional approval to run for a third presidential term. Bolivia's courts are dominated by judges loyal to the government and are likely to approve his candidacy. Aided by the benefits of incumbency--including vast fiscal and media resources-the Economist Intelligence Unit's baseline scenario is that Mr Morales will win a new term. This forecast is supported by the fact that Bolivia's fragmented and weak opposition is unlikely to agree on a unity presidential candidate. 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 and ethnic lines (which pit lowland interests against those of the highlands, for example). Although the MAS faces its own internal tensions, it does at least--and in contrast with the opposition parties--have a strong nationwide presence. Potential presidential candidates for the opposition include Juan del Granado--the leader of the leftist Movimiento Sin Miedo (MSM), who is popular in urban areas--and a former presidential candidate, Samuel Doria Medina of the right-wing Frente de Unidad Nacional (UN), 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 of the consumption of coca leaves for traditional use--the UN recently backed Bolivia on this practice; building support for Cuba and Venezuela (both allies of Bolivia) in international forums; and continuing long-running claims against Chile over sovereign access to the Pacific coast and the use of water resources along the border. The first two 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 as Bolivia steps up its efforts to take its sea-access claim to the International Court of Justice (ICJ) in The Hague. Bolivia will seek to maintain good commercial relations with Brazil and Argentina, the main destinations for its natural gas exports. To that end, the country agreed in December 2012 to join the Mercado Común del Sur (Mercosur, the Southern Cone customs union), although the overall benefits of membership are questionable, owing to the likely decline of Bolivia's agricultural export sector when the country is fully exposed to competition from Brazilian and Argentinian firms.

  POLICY TRENDS: Boosted by its sizeable fiscal resources, the administration will continue its long-held policy to put in place ambitious social and infrastructure programmes to tackle Bolivia's development needs, while seeking to expand the state's role in key economic sectors. The drive to expand the role of the state has been increasingly evident in the past year, with the government taking over an increasing number of privately-owned companies (including some that were never under state control, such as minor electricity grids), arguing that the private sector had failed to make the necessary investment. The government has also announced plans to increase the state's presence in the financial system radically, via greater control of interest rates and financial supervision. However, 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 risk producing severe distortions in the economy.

  ECONOMIC GROWTH: A dynamic domestic market and expanding natural gas production will support strong GDP growth during the outlook period. After expanding by an estimated 5% in 2012, we expect 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 weaker public consumption growth after the 2014 presidential election. 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 longer-term growth potential.

  INFLATION: Base effects and stable prices for certain commodities kept average inflation under control in 2012, at 4.5%, but a projected rise in liquidity (stemming mainly from higher fiscal spending) will put some upward pressure on prices ahead of the December 2014 elections. Nonetheless, slightly lower global oil and food prices, as well as improvements in monetary policy management, will keep annual inflation under control, at an annual average of 5.4% in 2013-17. Our forecast assumes that price expectations will remain contained, notably because there will be no adjustments to fuel prices--the government has on various occasions tried to cut subsidies, but backed down in the face of 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 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 short term, ensuring that the currency peg remains at Bs6.96:US$1. However, with limited risks of contagion in an improved global environment, and with price pressures already beginning to rise in early 2013, we expect the BCB to return to a currency strengthening policy later this year. 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 Bs6.41:US$1 by end-2017. Very high foreign reserves levels (equivalent to an average of 14.6 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, but the current-account surplus is expected to fall from an estimated 7.9% of GDP in 2012 to just under 3% of GDP in 2017 as gas exports gradually lose momentum. The large trade surplus will continue to be driven by strong hydrocarbons exports, increased refining of oil and metals and rising agricultural production, as well as only a moderate rise in imports (reflecting in part continued restrictions). However, with gas exports accounting for over half of total exports in 2013-17, the trade account could suffer significant volatility over the outlook period in line with unexpected swings in international commodity prices. Maintaining a comfortable trade surplus will be key, as we expect the services and income deficits--reflecting the country's structural constraints--to remain significant, averaging 8.2% of GDP annually in the outlook period. Moreover, although remittances started to recover in the second half of 2012, difficult labour conditions in Spain will prevent a rise in the transfers surplus (we expect a gradual fall in real terms, to 3.8% of GDP by 2017).

  March 11, 2013

• 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	4.7	4.4	4.6	4.5
  Gross agricultural production growth	4.0	3.5	3.5	3.6	3.5	3.6
  Consumer price inflation (av)	4.5c	5.2	6.0	5.2	5.4	5.3
  Consumer price inflation (end-period)	4.5c	5.6	5.7	5.3	5.4	5.1
  Commercial bank prime lending rate	11.1	11.3	12.0	12.4	12.7	13.4
  NFPS balance (% of GDP)	2.0	1.0	0.3	1.1	0.4	0.8
  Exports of goods fob (US$ bn)	10.7	12.5	14.2	16.3	19.1	22.2
  Imports of goods fob (US$ bn)	7.6	9.4	11.2	13.6	16.3	19.2
  Current-account balance (US$ bn)	2.1	1.9	1.7	1.0	1.1	1.3
  Current-account balance (% of GDP)	7.9	6.5	5.1	2.8	2.8	2.8
  External debt (year-end; US$ bn)	6.9	7.2	7.4	7.6	7.8	8.1
  Exchange rate Bs:US$ (av)	6.96c	6.95	6.88	6.74	6.62	6.49
  Exchange rate Bs:€ (av)	8.95c	9.24	9.03	8.56	8.34	8.18
  Exchange rate Bs:US$ (end-period)	6.96c	6.93	6.80	6.67	6.55	6.41
  Exchange rate Bs:SDR (end-period)	10.70c	10.51	10.27	9.91	9.74	9.53
  a The Economist Intelligence Unit estimates. b The Economist Intelligence Unit forecasts. c Actual.

  Download the numbers in Excel

  Download text file (csv format)

  March 05, 2013

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

 El Alto: 891

 La Paz (administrative capital): 835

 Cochabamba: 603

 Sucre (constitutional capital): 265

 Oruro: 217

 Tarija: 183

 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 2011: Bs6.99:US$1; Bs9.72:€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)

January 10, 2013