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Press Release No. 00/05
February 7, 2000
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Approves Second Annual PRGF Loan for Bolivia

The International Monetary Fund (IMF) today approved the second-year program for Bolivia under the Poverty Reduction and Growth Facility (PRGF)1 in an amount equivalent to SDR 33.6 million (about US$46.1 million) to support the government's economic program.

Bolivia's three-year program, originally under ESAF, was first approved on September 18, 1998 (see Press Release 98/41), in an amount equivalent to SDR 100.96 million (about US$138.5 million), of which SDR 33.65 million (about US$46.2 million) has been disbursed. Today's decision provides Bolivia with another SDR 33.6 million to be disbursed in three equal tranches of SDR 11.2 million (about US$15.4 million), the first of which is available immediately.

In commenting on the Executive Board discussion on Bolivia, Stanley Fischer, First Deputy Managing Director, said:

"Bolivia is to be commended for its solid policy track record since 1985, which has made it possible to lower inflation to industrial country levels while strengthening the external sector. Economic growth has averaged four percent a year during the 1990s, despite adverse external shocks. However, improvements in poverty and social indicators have been more modest. The slowdown in economic activity in 1999, resulting from the regional financial crisis and the weakness in international commodity prices, has posed a difficult challenge to Bolivia, and the authorities are to be praised for their successful efforts to maintain sound macroeconomic policies and progress in the implementation of structural reforms.

"The authorities' economic program for 2000 will be supported by the second annual arrangement under the current three-year PRGF commitment, which calls for the continuation of good macroeconomic policies, deepening of structural reforms, and a strengthened commitment to step up the fight against poverty. Under the program, the authorities will maintain the public sector finances on a sound basis, and the fiscal framework should embed the fiscal costs of the needed social outlays," Fischer said.

ANNEX

Program Summary

Although output growth slowed in 1999, Bolivia has weathered the downturn in the Latin America region well. The authorities reacted appropriately to a revenue shortfall by cutting outlays from budgeted levels, maintained a prudent monetary policy stance, and firmly and effectively resisted strong pressure from the private sector to raise external protection and to introduce relief on tax and interest obligations. Inflation declined to 3.1% in 1999.

The program aims at containing inflation in 2000 within a range of 4-4.5% and achieving a small increase in net official international reserves, while allowing a modest widening of the external current account deficit to 6.8% of GDP as the economy recovers and imports increase. Output growth is expected to pick up to about 4%.

The overall deficit of the combined public sector (after grants) is projected to narrow to 3.7% of GDP in 2000 (which would be equivalent to a small surplus excluding the cost of the pension reform) from 4.2% in 1999. The fiscal program aims at a slight improvement in the revenue-to-GDP ratio of the general government. Achievement of the fiscal objective for 2000 will require significant efforts on both the revenue and expenditure sides, which include a reform of customs; the strengthening of the legal base for tax enforcement through a new procedures code; a tight lid on current expenditures, including the wage bill; and a close monitoring of developments in local and regional governments in relation to debt and debt-servicing limits.

The authorities intend to deepen structural reforms in 2000, and the main actions to be undertaken involve completing the privatization program, improving transparency and modernizing the tax system and labor regulations. The remaining assets of the oil company YPFB, which include storage and distribution facilities and service stations, are to be privatized in 2000.

The authorities recognize that, although they have intensified their efforts in the fight against poverty in recent years, much remains to be done. The strengthening and refocusing of the antipoverty efforts will involve a national dialogue with civil society during the first half of this year. Among other already-planned actions, the authorities intend to ensure an adequate budgetary reallocation mainly to the health and education sectors; adopt policies specifically designed to the needs of the Altiplano and other poverty-stricken regions—such as alternative crop development in areas previously dedicated to coca cultivation; and ensure better domestic and international transportation links to facilitate export growth. The authorities also intend to request additional debt relief under the enhanced HIPC2 initiative.

Bolivia joined the IMF on December 27, 1945; its quota3 is SDR 171.5 million (about US$235.3 million). Bolivia's outstanding use of IMF credits totals SDR 180.0 million (about US$246.9 million).

Bolivia: Selected Economic and Financial Indicators

               
             
 

Average

   

Prel.

1999

Proj.

 

1990-95

1996

1997

1998

EBS/99/56

Proj.

2000

               

(Annual percentage change)

Income and prices

             

Real GDP

4.2

4.4

4.4

4.7

5.0

2-2.5

4.0

Real GDP per capita

1.7

2.0

2.0

2.2

2.6

0.1

1.6

Real gross domestic demand

3.9

5.4

9.0

6.6

...

0.2

4.4

               

GDP deflator

12.2

11.6

6.8

7.8

5.7

2.7

4.8

CPI inflation (period average)

13.0

12.4

4.7

7.7

3.9

2.2

4.2

CPI inflation (end-of-period)

12.4

8.0

6.7

4.4

5.5

3.1

4-4.5

               

(In percent of GDP)

Investment and savings

             

Gross domestic investment

15.2

16.2

19.8

20.0

20.4

18.4

19.7

Public

8.6

7.3

6.6

5.7

6.5

6.1

6.3

Private, including stocks

6.6

9.0

13.2

14.2

14.0

12.3

13.4

Gross national savings 1/

9.8

11.0

12.9

12.1

13.2

12.1

12.9

Public

4.7

6.1

3.0

1.6

2.5

1.8

2.7

Private

5.1

4.9

9.9

10.4

10.8

10.3

10.3

               

Combined public sector

             

Nonpension balance

-3.7

-0.7

-0.8

-0.1

0.3

-0.2

0.2

Pension-related balance

-0.3

-1.2

-2.5

-3.9

-4.2

-3.9

-3.9

Overall balance

-4.0

-1.9

-3.3

-4.0

-3.9

-4.2

-3.7

Foreign financing

3.7

2.5

2.7

2.8

2.9

2.5

2.4

Domestic financing

0.3

-0.6

0.5

1.2

1.0

1.7

1.3

               

(Annual percentage change, unless otherwise stated)

Money and credit

             

M3 growth

34.7

25.0

17.3

13.7

13.6

5.0

10.6

Credit to private sector

35.1

13.6

19.4

23.8

13.9

4.6

9.3

Interest rates (percent, end-of-period)

             

Yield on treasury bills in local currency

22.7

16.5

11.2

13.4

...

...

...

Yield on treasury bills in U.S. dollars

9.8

7.6

8.2

8.6

...

...

...

               

External sector (US$ million)

             

Current account balance 1/2/

-308

-389

-554

-675

-645

-537

-591

(percent of GDP)

-5.4

-5.3

-7.0

-7.9

-7.2

-6.3

-6.8

Of which: trade balance

-298

-450

-685

-878

-792

-639

-671

Capital account balance

241

731

657

777

521

657

522

Of which: foreign direct investment

93

426

599

870

705

915

785

Overall balance

-67

342

103

102

-124

120

-69

               

International trade

             

Merchandise export volume

6.7

4.9

5.0

2.7

5.0

-4.3

7.2

Merchandise import volume

6.2

16.6

22.2

12.9

-5.7

-15.4

6.4

Terms of trade (deterioration -)

-1.8

1.0

3.0

-3.8

-6.2

-2.7

0.9

               

Gross official reserves

             

(months of imports of goods
and services) 3/

4.6

6.5

5.7

7.5

6.0

6.9

6.2

Public sector external debt
(US$ billion) 4/5/

4.3

4.6

4.5

4.6

4.7

4.6

4.8

(percent of GDP) 4/5/

75.3

62.6

56.4

53.4

52.8

54.0

55.0

Debt-service ratio 4/6/

44.1

25.4

26.5

29.9

21.9

24.2

23.6

               

End-of-period exchange rates

             

Bolivianos/U.S. dollar

4.21

5.19

5.37

5.65

...

6.00

...

NEER (percentage change) 7/

25.8

-1.7

1.7

-2.8

...

...

...

REER (percentage change) 7/

-3.4

1.2

4.7

-1.3

...

...

...

               
 

Sources: Central Bank of Bolivia; Ministry of Finance; and World Bank/IMF staff estimates.

1/ The recording of inward transfers in the external current account (and foreign savings) was improved starting in 1997. It is not possible to compare trends in these variables before and after 1997.

2/ Excludes grants to finance debt-reduction operations.

3/ In months of imports of goods and services in the following year.

4/ Debt and debt service reflect HIPC assistance, which became available beginning in 1998.

5/ Includes obligations to the Fund and debt with public guarantee.

6/ On public sector medium- and long-term external debt (including payments to the Fund) in percent of exports of goods and services.

7/ New weights based on average trade, excluding trade related to natural gas, in 1996-97.


1On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. At this time for Bolivia, pending the completion of a PRSP, a preliminary framework has been set out in a interim PRSP, and a participatory process is under way. It is understood that all policy undertakings in the interim PRSP beyond the first year are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future reviews under this PRGF arrangement. PRGF loans carry an interest rate of 0.5 percent a year, and are repayable over 10 years with a 5 -year grace period on principal payments.

2The HIPC Initiative entails coordinated action by the international financial community, including multilateral institutions, to reduce to sustainable levels the external debt burden of heavily indebted poor countries that pursue IMF- and World Bank-supported adjustment and reform programs, but for whom traditional debt relief mechanisms are insufficient.

3A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing , and its allocation of SDRs.




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