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AmericasJuly 1 2007

Reasons to be cheerful

Bolivia’s central bank vice-president Gustavo Blacutt Alcalá talks to Hugh O’Shaughnessy in La Paz about the dramatic improvement of the country’s finances.
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Gustavo Blacutt Alcalá, vice-president of the Central Bank of Bolivia, has a magnificent view of La Paz, the commercial capital of the Andean country, from his 24th-floor office in a city that stands at 3600 metres. A lawyer from the city of Potosi, where the wealth of silver made it a byword for extravagance in the Spanish language centuries ago, Mr Blacutt was educated there and in the Complutense University in Madrid. Recently appointed to his post by president Evo Morales, he is that rarity: a manifestly happy central banker.

Perhaps he is one of the happiest central bankers in a country that is beginning to cease to be one of the world’s poorest. He and his fellow directors have reason to be. The foreign reserves are shooting up as hydrocarbons and mining bring in unexpected wealth: the government has very healthy budget and trade surpluses and foreigners are beating a path to the country’s airports and its store of energy and minerals. The score of senior Chinese bankers and industrialists that Mr Blacutt had seen in March had, he said, told him of their interest in the export items his country had to offer and in infrastructural schemes in Bolivia itself.

Turned around

In the 1980s, Bolivia was seen as a basket case. In 1980, politics were eminently unstable, foreign reserves were minus $90m and in 1984, 43.8% of foreign earnings – a little more than 5% of gross national product – was being spent on servicing a debt of $3.2bn. With inflation of about 25,000% a year, caused mostly by the central bank’s duty to give the government money, even modest cash payments required the aid of a wheelbarrow.

“When we finally did away with the old notes, it took months and we had to use the furnaces at the Vinto complex designed to smelt Bolivian minerals,” Mr Blacutt recalls.

Today’s inflation rate hovers at about 7% and the central bank has now had its independence for more than a decade.

The government of Mr Morales – the hungry peasant boy who herded llamas, went on to be a wandering trumpeter and then became South America’s first elected aboriginal president – has transformed the outlook of an uneasy society consisting of a minority of European descents and a big majority of native peoples from more than 30 ethnic groups and people of mixed race. Mr Morales took majority control of the energy companies, including British Gas and Total of France, last year with the purpose of pushing up receipts from the hydrocarbons industry, which had been scandalously low. For domestic political reasons this was carried out with much formality and the deployment of the army.

The prices of Bolivian gas exported to its neighbours Brazil and Argentina were pushed up steeply after difficult negotiations. Consequently, net international reserves went from $1.7bn at the beginning of last year to $3.2bn at the end. The fiscal deficit of 2005 went to a surplus of nearly 6% in 2006 while the budget for 2007 will be $1.1bn, a big jump from the mere $762m last year.

Mr Blacutt reiterates that the new government that came in at the beginning of 2006 has made many errors. “There were errors of form in the revised contract with the foreign oil companies signed last year,” he admits.

“But you have to remember that state oil company YPFB, which had to negotiate them, had been run down drastically over many years and didn’t have a great deal of expertise left,” he adds. He is proud that the country no longer exports its natural gas for a few cents but is now selling to its neighbours for $5 per 1000 cubic metres. “Certainly there were failings, but we’re all human,” he says.

Some foreign companies have left Bolivia. “They included some that got used to amazing profits and had no thought for Bolivian interests. But this Bolivian government needs foreign capital and expertise,” says Mr Blacutt.

Capital inflows

New investments are being made, too. Indian steel firm Jindal is preparing to develop the vast Mutun iron ore deposit in the south-east of the country with an investment that could reach $2.3bn and provide 6000 jobs. “Jindal doesn’t have the whole deposit and there are investment opportunities for others, perhaps the Chinese,” muses Mr Blacutt.

He is enthusiastic about Bolivia’s decision to move out of the supervisory orbit of the IMF because the need for its assistance has sharply declined. He is keen, too, on the social plans of the Morales administration. “This is a country of many races and the challenge is to transform it into a multinational country that is sure of its identity and is happy with it,” he says. “All our indigenous people – and there are few Bolivians who don’t have indigenous roots – want to feel that they are getting fair shares in a country that used to be run by and for the benefit of a tiny minority.

“It will be a long job but Evo Morales has made an excellent start,” he says.

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