Q: The Bolivian government has been praised for its prudent macroeconomic management over the past five years. But can such sound policies be sustained in the face of rising inflation, and higher food and fuel prices?
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A: Inflation is a pressing issue facing all South American countries at the moment. In Bolivia one factor causing inflation has been expectations of price increases among businesses. Also, in Bolivia food is very cheap compared to its neighbours. So a lot of Bolivia’s food production is now being smuggled out of the country to neighbouring countries such as Peru and Brazil. The same is happening to gasoline and diesel fuel, which are [also] less expensive in Bolivia. A lot is being smuggled out of the country. So we have increased our border patrols. We are also investing $20m in our 2011 budget to establish a new, specific anti-smuggling agency to co-ordinate police, army and official actions. We have also increased the penalties for smuggling. And privately owned gasoline stations near our borders can now be seized by the government if the owners are found to be involved in smuggling.
We are [also] applying monetary, fiscal and exchange-rate policies to manage inflation, just as in other Latin American countries. Last year, inflation rose 7.2%, but this year, based on first-quarter results, we forecast an annual inflation rate of 6%, so inflation is very much under control.
Q: Given the importance of food in most Bolivians' household expenditure, is there a risk that rising food prices will undermine the government’s anti-poverty, social programmes?
A: We guarantee our social programmes and food production in the budget. We will invest in both this year, as in previous years [of president Evo Morales’ government]. But we have a lot of room for manoeuvring. Economic growth was 4.2% last year and we expect gross domestic product [GDP] growth to be at least 5% this year, higher than the average for Latin America. We also have been doing a good job reducing our external and internal debt, which now stand [respectively] at 14% and 22% of GDP. We also had a fiscal surplus in 2010 for the fifth consecutive year. Before that, Bolivia had not had a fiscal surplus for 39 years. And our international reserves have also increased, from $1.7bn in 2005 to $10.5bn now. They are very high.
So that’s why in the 2011 budget we are planning a big increase in public investment to $3.2bn [compared with about $1.5bn in 2010], which we intend to finance in part with credits from IFIs [international financial institutions], in part with bilateral government credits and also with money from the private sector for specific projects, such as the construction of the Cachuela Esperanza dam near Brazil’s north-eastern border, to produce electricity to export to Brazil and for the Bolivian market.
Q: In January the government took the bold step of removing gasoline subsidies, which led to a 73% increase in the domestic price of gasoline and widespread protests. What is being done now?
A: In Bolivia’s case, high international oil prices have a good and a bad side. The disadvantage is we import liquid hydrocarbons, we don’t produce them. So we now have to pay for these imports. They cost about $600m a year. And, on top of that, we spend about $400m in subsidies to keep domestic gasoline prices low. So in January we decided the best measure in economic terms was to let domestic gasoline prices rise. But opposition parties resisted this move, and there was also a high social cost, so the government reversed the measure. On the good side, higher international oil prices benefit us because Argentina and Brazil have to pay more for our natural gas exports [Bolivia has the second largest natural-gas reserves in South America].
Q: Why is Bolivia graduating from being considered a low-income country to a middle-income country by the World Bank and other IFIs, and what are the disadvantages and advantages of such a change?
The reason for it is because, while in 2006 the income per capita in Bolivia was $1010, in 2010 this had risen to $1871, almost an 80% increase. The main disadvantage is that we will no longer be able to obtain credits from IFIs on concessional terms. But the advantage is that in the past when we obtained concessional loans they were only very small. Now, as a middle-income country, we will be able to borrow much larger sums from the IFIs and other doors will open. We will be able to access capital markets for funds. The other advantage is that we are much more likely to attract foreign direct investment. When investors see that a country is low income they tend not to invest in it so readily as when it is a middle-income country.
