Press Release: IMF Executive Board Completes Sixth Review Under Stand-By Arrangement for Bolivia
October 31, 2005
The Executive Board of the International Monetary Fund (IMF) today completed the sixth review of Bolivia's performance under an SDR 171.5 million (about US$248.9 million) Stand-By Arrangement that was originally approved for SDR 85.75 million (about US$124.5 million) on April 2, 2003 (see Press Release No. 03/46) and subsequently augmented and extended through March 31, 2006 (see Press Release No. 05/78).
The Board also granted the authorities' request to reduce the size of the current arrangement by SDR 25.72 million (about US$37.3 million) to SDR 145.78 million (about US$211.6 million). The reduction in total access under the Stand-By Arrangement reflects Bolivia's stronger than envisioned balance of payments outcome under the IMF-supported economic program. Completion of this review makes an amount equivalent to SDR 17.14 million (about US$24.9 million) available to Bolivia immediately. The remaining SDR 17.14 million under the arrangement could be made available for disbursement subject to Board approval during the next and final review of Bolivia's performance. However, the authorities have indicated that they intend to treat the arrangement as precautionary henceforth.
In completing the sixth review, the Board also granted the authorities' request for waivers of applicability of performance criteria on the combined public sector deficit and domestic financing outturns relative to their end-September quantitative performance criteria, and for the non-observance of the end-June 2005 performance criterion on passage of a revised 2005 budget law.1
Following the Board's discussion on Bolivia, Ms. Anne O. Krueger, First Deputy Managing Director and Acting Chair, made the following statement:
"Despite the difficult political developments, and aided by a favorable external environment, macroeconomic stability in Bolivia has been maintained and overall economic performance in 2005 has been positive. Economic activity has picked up despite the negative impact of social tensions early in the year, inflation remains in single digits, and the external current account continues to show a surplus. Financial system deposits have recovered and central bank reserves have strengthened. Risks remain for the authorities' economic program, but the recent strong performance has lessened economic vulnerabilities.
"The authorities are committed to maintaining the fiscal deficit on its declining trend. This will be achieved by saving part of the large increase in hydrocarbons revenue resulting from an increase in the tax rate and strong gas export prices. The recently-submitted 2006 budget aims at reducing the fiscal deficit further, thereby consolidating the fiscal adjustment effort pursued in recent years.
"Aided by a better-than-programmed fiscal position, the central bank has been implementing a measured and appropriate monetary policy during the difficult political transition. International reserves are being rebuilt in the context of a decline in policy interest rates and a welcome improvement in the maturity structure and currency composition of the domestic debt. The authorities' prudent financial management is allowing them to adhere to the quantitative targets of the program.
"Looking ahead, the macroeconomic policy targets for 2005 and 2006 have been strengthened, and the structural policy component of the program has been reprofiled in light of the interim nature of the current government. On the structural front, the authorities have submitted to Congress a draft budget framework law aimed at strengthening the budget process at all levels of government; and a draft law introducing a partial coverage deposit insurance scheme. However, the hydrocarbons law enacted by Congress last May risks undermining the development of the sector, especially in light of tax rigidities and legal uncertainties. The authorities believe that more time is needed for a full assessment of the impact of that law given the altered energy price outlook and the ongoing contacts with oil companies on the implementing regulations.
"Continued macroeconomic stability and sustained growth and poverty reduction over the medium term depend on prudent management of hydrocarbons-based revenue together with a removal of impediments to investment in the sector. It will also be important to achieve a balance between revenue allocations and spending responsibilities at all levels of government, to make progress with the tax reform, to implement a more market-based petroleum product pricing mechanism, to appropriately focus poverty-reducing spending, and to reduce further vulnerabilities in the financial sector," Ms. Krueger said.
1 The staff report for the Sixth Review of the Stand-By Arrangement with Bolivia may be made available at a later stage if the authorities consent.