Fundacion Milenio has released another good report, No.154 dated July 13, 2012; because os its relevance, I reproduce in its entirety:
The Bolivian economy and its institutional weakening
The Bolivian economy continues to enjoy an economic boom that, despite the problems that have arisen in Europe and United States, maintains high prices for our exports. This is reflected in increasing imports, reserve accumulation and relative stability of prices. However, a perspective over the long-term, it is observed, that we are far from having overcome the challenges of building a more sustainable economy capable of generating value and transform natural resources into productive force, and provide better opportunities.
Despite the decline in the pace of growth of the world economy, raw materials prices remained at elevated levels. Our exports, driven by higher prices, grew significantly (30.9 per cent). This increase in exports is explained by 84.5 per cent by rising prices and only by 15.1 per cent by larger volumes. Most of the increase in the volume of exports came from the mining sector and hydrocarbons, while the value of non-traditional exports decreased. This has accelerated our export dependence on non-renewable raw materials than the 2011, which accounted for 83.2 per cent of the total exports.
The improvement in the value of exports increased significantly the income of the country that largely went to greater domestic absorption. Both consumption and investment grew significantly, which stimulated demand, production for the domestic market, and imports. Bolivia grew by 5.1 per cent for the third quarter of 2011; one per cent more than 2010. The sectors that explain this growth are mainly non-tradable and service sectors (transport and communications, financial institutions, public administration). On the other hand, the productive sectors show a more modest contribution to growth. On the demand side, the gross domestic product grew driven by consumption of households (with an incidence of 3.7 per cent in GDP), followed by the gross fixed capital formation (with an incidence of 2.5 per cent in GDP). Greater domestic demand also resulted in a significant increase in imports, which grew by 42.3 per cent; reaching a historical record of $7,673 million dollars. The improvement in the levels of income of the country has had its reflection in the reduction of unemployment, which, according to official figures, reached 5.5 per cent of the PEA. Poverty also has been reduced, the 2011 moderate poverty has fallen to 48.5 per cent of the population, while extreme poverty stood at 24.3 per cent.
Although the country has registered a significant growth, this pales when compared it with countries with similar conditions. Unfortunately the institutional conditions have continued deteriorating in the country. Bolivia is ranked 123 of 142 countries assessed by the global competitiveness report, reflecting poor conditions in the country for local and international investment, and the development of productive activities. Broken down by categories, the previous index shows little with respect for property rights (136 position for formal assets and 118 for intellectual assets), the lack of legal independence (100th place) and low protection to investors (111 position).
In 2011, natural gas production reached 43.5 million mcd [cubic meters per day], although this represents a growth of 9 percent over 2010, as seen over the medium term, this figure doesn’t break the deadlock in the sector (2008 had already been 39.7 million mcd). This market has been determined from a demand-driven market, which will have important consequences in the future. In fact, the largest production in 2011 is explained by the increase in the demand for Argentina (which reached 7.5 million mcd). Liquids production achieved a growth of 3.8 per cent, mainly for fluids associated with natural gas, because production of the oil fields continued their decline. The provision of fluids to the domestic market continues to be a major challenge, since demand for gasoline and diesel is growing at a higher rate than the supply, so in 2011 a record of fuel imports has reached. To overcome this problem it is urgent to attract greater investment.
Mining reached a record in the produced value; in 2011 $3,527.6 million, 37.4 per cent more than in 2010. This important growth of 33.3 percent can be attributed to higher prices and 4.1 percent to higher production volumes. Striking is the fact that despite the exceptional mineral prices, there is no further increase in production, nor the development of new ventures. This is due in large part to the institutional risk that governs the sector. In fact, stands the Declaration of fiscal reserve of the territory, and the monopoly of Comibol for managing contracts is not specified nor regulated, giving rise to discretion in the administration of concessions. We must also remember that persists the illegal occupation of more than 100 mining companies. The most dynamic sector was cooperative mining and small mining (whose production grew by 11.1 per cent). Cooperative mining concentrated 96 percent of employment in mining and is especially vulnerable to a reduction in the prices of minerals. By its size and capacity of social pressure, a latent danger is with a drop in the prices of minerals in the international markets, this sector will press for subsidies. We must remember that this sector already enjoys tax advantages.
In the agricultural sector, the high international prices of food, which reached records at the beginning of 2011 (even though tended to moderate towards the end of the year), also constituted an incentive to the sector. The agricultural sector recovered, changing the recessive trend that had experienced in 2010, despite the policy of intervention in the sector, the reversal of land in the Bolivian eastern part, institutional weaknesses and the volatility of prices in local markets. The increase of farmed land, and the absence of climatic adversity has contributed to this. It should be noted the recovery in production of flint maize, rice, and fruit sector. However, that effort has not prevented to increase food imports, which rose by 52.6 per cent, reaching $519 million dollars.
The strong expansion of imports during 2011, reduced the balance of trade, despite the expansion of the value of exports. Therefore the balance on current account, even if positive, was 44.5 per cent lower in relation to the balance obtained in 2010. The balance on current account in 2011 was the lowest obtained since 2005. The capital account reached in 2011 was $1,528.3 million, an increase of 66.7 per cent in relation to the level reached in 2010, explained by the increase in the investment portfolio, and a reduction of capital outflows.
Fiscal accounts reached a surplus of 0.8% of GDP, less than the achieved balance in 2010. This surplus came from the surplus of public enterprises, which reached an equivalent to 1.9 per cent of GDP, while the general government returned to suffer a deficit of 1.1 per cent of GDP. Non financial Public sector surplus (NFPs) was not more because expenditures increased by 25.3 percent, while revenues rose by one smaller proportion; 22.8 per cent. The strong growth of expenditures of the NFPs is the result of a significant increase of public investment. The increase in capital spending records an increase of 50 percent, while current expenditures grew by 17.1 percent.
The 2011 was another positive year for the financial sector. Assets of the banking system increased by 21.3 percent, the same rate that expanded the liabilities and equity. The most important aspect was the major expansion of the portfolio, which grew by 26 percent, banking sector is back to take an important role in financial intermediation. The sectors that led the credit were primarily trade and real estate. On the other hand, the proportion of the portfolio for the productive sector decreased. The portfolio for trade, the financing for construction and the purchase of real estate adds 68 per cent of the increase in the total portfolio of 2011.
The whole document in Spanish is here. Coy_154_-_La_economía_boliviana_y_su_debilitamiento_inst?= =?iso-8859-1?Q?itucional