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AmericasMay 2 2004

Exports key for lifting economy

Bolivia is anxious to capitalise on its resources but political unrest is making this difficult.Bolivia’s new finance minister, Javier Cuevas, faces a tough task. He has to steer the poor, landlocked country’s economy amid an intense period of political uncertainty.
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Last October a wave of protests, sparked by the government’s proposal to export natural gas reserves, forced the resignation of the president, Gonzalo Sánchez de Lozada. Mr Cuevas is now working with Bolivia’s new president, Carlos Mesa, who will run the transition government until general elections in 2007. “The government’s main goals are to maintain economic sustainability, social peace and increase the ability for more sectors of society to participate in the political process,” Mr Cuevas told The Banker.

Staying afloat

Bolivia’s economy depends on the export of its natural resources, namely silver, gold and tin. It is reassuring that global prices for these commodities are up, but better still is Bolivia’s true economic ace: its huge natural gas reserves, which are the largest in Latin America.

Mr Sánchez de Lozada wanted to export Bolivia’s natural gas, mainly to Mexico. Many Bolivians took to the streets, angry that their natural resources were leaving the country without visible reductions in the high poverty levels.

A top government priority will be to convince the public that the natural gas reform is right for Bolivia. In June a referendum will be held on whether to send natural gas abroad and the outcome of the vote remains uncertain.

“It’s tough to understand that a poor country like Bolivia has gas to sell but doesn’t want to,” says Mr Cuevas. “But there are many marginalised sectors that have not benefited from the export of natural resources. This is an entrenched sentiment and it will take a lot to erase the lack of confidence in the process.”

Crucial referendum

If the referendum passes, Bolivia could see its export bill grow four-fold, says Mr Cuevas. If it fails, not all will be lost. Bolivia’s local currency, the bolívar, is proving stable. No steep devaluations are forecast, such as those suffered by Argentina and Brazil. Mr Cuevas says that still-strong prices for Bolivia’s main exports – which, along with minerals, include soy – have kept the currency healthy.

“The market is good for our exports and this guarantees income for us. Investors should know that there are good opportunities here,” says the finance minister. Bolivia’s outlook would brighten still more if the Mesa government passed its reform package. It includes new taxes, including some on industry and a 0.2% financial transactions tax. There are also measures to ease the budget deficit.

Political resistance

The proposals face resistance from protesters determined to stop any new taxes. Yet support for the protest movement – led by the former main opposition party to Mr Sánchez de Lozada, Evo Morales’s Movement to Socialism – may be eroding. Mr Mesa is proving more popular than his predecessor, largely because he is not aligned to any political party. The new president has also signed into law crowd-pleasing constitutional amendments, such as weakening the immunity from prosecution that legislators have long enjoyed.

“Mr Mesa wants to avoid polarising society. He takes a moderate position and is trying to rebuild confidence among Bolivians,” says Mr Cuevas. “We’re seeing fewer strikes and protests. It’s becoming more relaxed.”

Bolivia’s financial sector, meanwhile, will struggle until there is a clear economic turnaround. Although officials have passed regulations in recent years to strengthen banks’ operating standards, most commercial banks have experienced a drop in their level of deposits and a rise in past-due loans (the rate of the latter currently stands at about 8%).

“The financial sector is weak. It’ll take a better economic situation to turn it around,” says Mr Cuevas, adding that the same goes for Bolivia’s underdeveloped capital markets.

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Read more about:  Americas , Bolivia