December Econ 101: An alert that State intervention is ‘expensive’

A very informative report news, extremely useful economic analysis of current Bolivian government performance. Written by Carla Paz Vargas for El Deber, December 3, 2011:

The blackouts, the importation of food, the restriction of exports, the increase in the subsidy to fuel, lack of jobs and the collapse of foreign investment, among other things, are the ‘invoices’ the country begins to pay because of the new State economic model applied in Bolivia since 2006, according to a warning made by economic analysts.
They met in a round table; some of the best economists of Santa Cruz and La Paz to analyze the current scenario of the Bolivian economy and prospects for the coming year.
The former President of the Central Bank of Bolivia Armando Mendez; the Manager of the Bolivian Institute of Foreign Trade (IBCE), Gary Rodríguez; CEBEC-CAINCO Director, David Suarez; Secretary of the Bolivia School of Economists, Teofilo Caballero; and the Economic Adviser to the Governor of Santa Cruz, Carlos Schlink, reflected their perception of the current stage.
On the criterion of Mendez, President Evo Morales changed the economy and back=tracked Bolivia to the 1990s, because now the economy is dominated by the State. In 2000, the State economy accounted for 5% and now is at 60%. In this regard, he suggests [the need] to ensure the transparent management of State-owned enterprises because it is the sector that receives more public investment.
For the Manager of the IBCE, Gary Rodriguez, this year began the harvest of the ‘bad seed’ of economic policies implemented by the Government. For example, he mentioned that five years ago oil was nationalized, and now, instead of producing more fuels, [we have] increased imports, as well as with electricity generators, because [we are] living the consequences with [the] blackouts.
He also noted that with the veto on export, the country went from selling to buying corn, so today Bolivia depends more on imports than five years ago. “We grow by inertia.” “Due to high prices in international markets”, said.
David Suárez, CEBEC-CAINCO Executive, agreed with his fellow economists in that lived a structural shift in how to handle finances, but criticized that, despite good macroeconomic indicators, there is a substantial improvement in the well-being of the population.
He argued that this management approved several laws that affect business activities, but to date they were not regulated, a reason for which there is more uncertainty. “Apart from development, you have to see how to develop and involve actors, in this case employers, so the laws will be more realistic”, he recommended.
For his part, the economist Caballero said that citizens are entitled to demand greater transparency in State-owned enterprises because, as they say [the government], they [the State-owned companies] belong to the Bolivian people.
“We know that the rulers are determined to give priority to the internal market and therefore there are subsidies and veto to food exports, but we are talking about a limited market, where 60% is poor and a 30% live in conditions of extreme poverty,” he said.
In turn, Schlink said that you for the executed public investment, economic growth should have been higher for this year. Furthermore, he questioned that natural gas is still producing 41 million cubic meters / day, a value which has been [the same] in the past three years by lack of investment in the sector. “A sign that the figures are not clear is that the Government refuses to increase 1% in wages, implying Bs 70 million.” “Then, [we] are not living the bonanza that highlights the Ministry of economy and finance”, he stressed.


In tons of sugar

91 billion
In the purchase of sugar, we went from eight tons in 2010 to 91,255 tons in the first seven months of this year

Demand for food

in the past 10 years food demand on urban centers has grown

The recipe from experts

Armando Mendez, former president of the Central Bank of Bolivia (BCB). The government [should] invest up to 25% of the GDP

“The idea is what we are going to sow for the next years and the reality is that we are still trapped.” How Bolivia can grow up to 7%?, the basic rule is to invest 25% of GDP (that is, markets and products). However, managing the Bolivian economy is not easy due to the high rate of informality and poverty. It is the economics of smallholders and employment generated is informal, so wages are low. “Bolivia must devote to invest in increasing production of hydrocarbons to comply with agreements and respond to the domestic market”.
Gary Rodríguez Managing long-term projects, IBCE
“The outstanding chapter is the handling of the economy.” When we talk about consolidate three requests: legal certainty for investors, markets, insurance and policies to generate competitiveness, we see that it requires long-term financing.
The administration [central government] of the country should ‘take out the ideology” so that Bolivia does not lose customers nor markets. It is possible that [for those] countries that are in crisis, to return our migrants and we must be prepared with new jobs. It was promised [too] much and they are prisoners of their speech; “you must now retrieve its [people] confidence.”
David Suárez CEBEC-CAINCO. Boost the private sector
“You must create the conditions to encourage private sector investment.” It is true that from 17% of private investment, fell to 8%, and we forget that the national capitals have replaced foreign capitals after the nationalization of hydrocarbons. If we see the ECLAC [CEPAL in Spanish] data, we see that foreign capitals flowed into the region by the international crisis, but did not come to Bolivia.
“You must provide more support to small and medium-sized enterprises, because they are those that generate more jobs”.
Teofilo Caballero, economist. Support for renewable products
“The State budget for 2012 State shows that the highest percentage of resources corresponds to the central Government (87%), so it must decentralize.” Another important aspect is to allocate capital to renewable product development, because now we depend much on gas, and mineral exports, which makes us vulnerable. The State should be more proactive in the generation of employment, because now the heaviest single burden rests with the private sector and a hydrocarbon law [should] pass to revive the sector.
Carlos Schlink, Advisor for the Santa Cruz Governor’s Office. They should encourage the figures
“If we see the data of public investment, it historically never surpassed the $1.5 billion.” In 2011 they budgeted us $2,596 million, but the implementation as of September it reaches $1,080 million budget – which amounts to 44 per cent – and will be very difficult in the last three months [for the central government] to overcome those indicators. This shows figures [budgeted and advertised] that are not real.
“What they have done in this new period of Government is to change the codes of public investment and they do not have a track record of the increase in the projected levels of the budget.”
People feel that its economy grew worse in 2011
A survey by the newspaper El Deber in its online edition, showed evidence on the existing views on their economic situation under the present management, up to 50.32% of  the participants believed that it [the economy] deteriorated.
About 622 Internet users responded to the consultation. Thus, 27.33% believes that its economy remains the same. Meanwhile, 22,35% believed that it was improved from 2010. About the large number of people that has seen its economy worsen, the analyst Javier Luis Mendoza stated that inflation which mentions the Government is not the real and therefore wages were not adjusted as it should be, so people see increasingly that people buy less with what they earn and that foods became more expensive.
Another aspect which influences the distress of the population is that with the fall of the dollar [exchange rate] imports increased, when the Government should encourage non-traditional exports to generate more and better jobs in the domestic industry.
The current situation and projected 2012
1. Indicators. The macroeconomic scenario figures are positive. The growth of GDP (5.2%), exports ($7,567 million until October), international reserves ($ 12 billion) are highlighted by economic analysts.
2. Foreign purchases. One of the biggest concerns is the growth of imports, especially of food. The Bolivian State invested between January and July this year, $375 million for the import of 503,000 tons of sugar, wheat flour, corn and wheat; surpassing those imports registered by the government for 2010, which reached 298,000 tons, at a cost of $217 million.
3. State-owned enterprises. This year there were more State-owned enterprises. Economists call for more transparency in the Administration to avoid the mistakes of the past.
4. Growth. Investment is planned to rise to 27% of the gross domestic product, which would grow the economy between 6% and 7%, because in recent years the investment remained at 17% of the GDP. In addition, [government should] reduce public spending.
5. Legal Framework. They [the economists] are demanding greater legal certainty to increase investment, especially foreign ones, to revive the hydrocarbon sector.
6. Investment. They [the economists] suggest that the State increase investment to generate more formal employment. In addition, to connect Bolivia to the world through the support to the export sector to consolidate markets.
7.Migrants. It is possible that because of the international economic crisis, there will be the return of migrants to the country, so it [the government] must generate more formal employment, this will prevent crime to increase.
Government does not want to talk about its economic model
The newspaper El Deber has requested information on the State economic model applied by the Government, the effect and if a change is analyzed for the next year, but until the close of the present report did not receive a response [from the central government].
Consultations were made by e-mail, via telephone and personally to some government authorities, but they don’t want to talk about [this issue].
From the editorial office consultations were made via e-mail, to the ministries of Economy and Finance; Productive Development; and Rural Development and Land.
In the Ministry of Development Planning, they indicated that the Minister was traveling and Productive Development said that the response corresponds to the ministry of Economics and Finance. On Friday, the Minister Nemesia Achacollo did not respond on this issue.
The full excellent article in Spanish can be found in the link below:
From my part, I can only congratulate Carla Paz Vargas and El Deber, for a well done job!!!

Published by Bolivian Thoughts

Senior managerial experience on sustainable development projects.

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