Bolivia’s Economy: Strong 2008 Performance, Uneasy Start to 2009

(IPS) – The Bolivian government of Evo Morales enjoyed a third consecutive year of strong economic growth in 2008, but business leaders warn that the drop in commodity prices will hurt export revenues and lead to a rise in unemployment in the months to come.

"The year 2008 will be known as a watershed in the economic history of Bolivia," said Finance Minister Luis Arce, after reporting that GDP grew 6.5 percent last year, while inflation stood at 12 percent, largely due to high international prices of food.

The left-wing Morales administration also reported that exports reached a record high of 6.2 billion dollars — nearly three times the 2004 figure — and that foreign reserves amounted to 7.7 billion dollars.

The country’s economic indicators were above the regional average for Latin America in 2008, said Arce, who predicted that Bolivia, with a GDP of 12 billion dollars, is in a position to weather the global economic crisis in 2009.

However, cement industry magnate Samuel Doria Medina, leader of the centre-right opposition National Unity party, told IPS that "in the year 2009, we will experience a major drop in export revenues, because their growth was only based on higher prices, rather than on an increase in production."

He said last year’s growth of the economy was due to soaring international prices for metals and the start of mining operations for lead, silver and zinc in the department (province) of Potosí by the San Cristóbal company.

But revenues have also grown as a result of higher taxes paid by foreign oil companies. Shortly after taking office in January 2006, Morales announced the nationalisation of the energy industry, and the government renegotiated contracts with the firms exploiting Bolivia’s abundant natural gas reserves, thus increasing the royalties and taxes paid by foreign oil corporations.

The head of the National Chamber of Bolivian Exporters (CANEB), José Ribero, noted to IPS that "50 percent of Bolivia’s exports are hydrocarbons…which means the plunge in the price of oil from 150 to 44 dollars a barrel" will hurt the country in 2009.

Roughly one-quarter of the country’s exports are minerals, whose prices have fallen by up to 50 percent, and the remaining 25 percent is mainly made up of oilseeds, whose prices have also gone down, Ribero added.

The business leader concurred with Medina that export volumes did not grow in 2008, and that the rise in revenues was due to the high international prices.

Medina said that as a result of the projected reduction in productive activity and foreign trade, up to 100,000 people could join the 215,000 who are already unemployed in Bolivia, South America’s poorest country.

To stave off the effects of the international crisis, Arce announced 1.85 billion dollars in public sector spending, along with a one billion dollar extraordinary allotment of funds for the state oil company YPFB, to offset the low production of gas and fuels for the domestic market.

Medina, however, countered that the government had failed to invest all of the money allocated for 2008.

The economic model presented by Arce is based on the continued recovery of the country’s natural wealth for the public coffers, and on the identification of sectors that generate a surplus, like natural gas, mining and the generation of electricity.

The next step, he said, is to exploit these resources rationally in order to improve living conditions and create a productive base to stimulate the manufacturing and tourism industries.

The minister said the financial sector is strong and is not at risk of crisis, and that the only problem is the jitters in the mining and oil industry caused by the drop in prices and the need to lay off workers.