Daily Archives: November 1, 2012

Does current Bolivian government really hates or embraces capitalism?

Armando Mendez Morales, a reputable Bolivian economist analyzes current government’s doings… or undoings??! From Pagina Siete:

500 million dollars for what?

The Government of President Morales, characterized by its open anticapitalist ideological discourse, has just presented, to the world, as a country that is willing to play the rules of the system. If something is essential to capitalism is the financial world, the stock exchanges. A primary feature of capitalism is that there are savers and investors.

In the country the news is welcomed, especially those interested in buying $ 500 million exceeded several times this amount. Highlighted that Bolivia got a lower interest rate compared to other countries that have the same risk BB – rating. What was not said is that these countries issued such bonds several years ago, when the global financial situation was not present. A month ago, Brazil placed debt at a rate of 2.6%, which in financial language implies that it pays 220 basis-points less than what Bolivia will do. And this is so because Brazil has a better score when measuring the “country risk”.

Fitch Ratings has a scale to qualify the risk country that covers 21 positions; from D up to triple A. D is the lowest and the 21 place occupies the triple A. The latter involves credit excellence; it is an absolutely safe paying. D means that do not pay their financial obligations. Between these extremes there are a variety of positions from the less to the more reliable. Bolivia, recently, has climbed a step and is now in the ninth step (BB-), which means in the situation of “speculation”. What you want to say with this? It is not a safe country, by what lenders expect interest rate to compensate this risk. For this reason the interest rate Bolivia is paying: “306 basis points over comparable roles of the United States Treasure”.

Why was there a very good reception from the Bolivian bonds on speculative financial markets? Since the outbreak of the global financial crisis of 2007, which became economic recession in 2009 and is now based in Europe with the serious crisis in debt – because of the type of bonds that Bolivia just sold-, the developed world is full of money that has no where to put it. Speculative money is “parked” and do not earn any interest. Latin America is going through one of its best moments, which attracts all kinds of capitalists. They see in the region, a place where they can win, when in the United States and in Europe they do not see it. This is the first reason that explains the interest in Bolivian debt.

Another reason, the Bolivian economy is going through a very good economic period, with an annual growth rate of 5%, a highly favorable foreign trade surplus, something exceptional in Latin America country. This situation has resulted in a continuous increase of international reserves from a level of $1.7 billion dollars in 2005 climbed to more than 13,000 million, an amount that represents 50% of GDP, similar to what has the Chinese colossus. As external public debt brought it to us, it was drastically reduced until today located at 15% of GDP, a level that has not registered since there was information about the Bolivian external debt. This information is known by those who have bought the Bolivian bonds and who will receive an interest rate of 4.8% per year over the next ten years, 2.2% more than what Brazil pays.

The Government continually reminds us that the public sector is now in surplus. According to official figures, this is confirmed. The year 2006 has fiscal surplus, which means that public sector spends less than the income received, something unlikely for the past. The savings accumulated from then until August of this year reaching $2.8 billion resources that are deposited in the Central Bank of Bolivia.

In this context it should be the question: what is the reason to incur in debt? Perhaps we can not can use those accumulated savings? Minister Luis Arce, in principle, has stated that the purpose is to sit Bolivia on the placement of ‘sovereign bonds’ major league after 90 years. If this is the case, the 500 million dollars would be deposited in the Central Bank, which would increase in the amount of international reserves. The exception is that while we will pay 4.8% for those resources, as part of our international reserves we would not win more than 1%.

But then the Arce Minister has said: “Going to invest in roads, in productive projects”. In this case means they will spend, but in doing so the Bolivian public sector will enter into deficit, because you will be spending beyond their income. If so borrowing is justified and it is announced that in the future, the Bolivian public sector will return to their old ways, which is the chronic fiscal deficit, with the consequent expansion of public debt, something which today makes crisis in Europe.


I hope current government analyzes this opinion article and amends their doings…