Bolivia and the IMF
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IMF Executive Board Completes Fifth Review Under Bolivia's Stand-By Arrangement, Approves US$14.5 million Disbursement, a US$64.5 Augmentation and an Extension of The Arrangement
The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Bolivia's performance under a 12-month, SDR 85.75 million (about US$129.1 million) Stand-By Arrangement that was originally approved on April 2, 2003 (see Press Release No. 03/46) and later augmented and extended (see Press Release No. 04/113).
This decision enables the release of SDR 9.66 million (about US$14.5 million) to Bolivia, bringing total disbursements under the arrangement to SDR 111.5 million (about US$167.9 million).
In completing the review, the Executive Board approved Bolivia's request for waivers for the nonobservance of two performance criteria, related to the central bank net credit to the nonfinancial public sector; and to the law on the tax code procedures. In addition, the Executive Board approved an extension of the Stand-By Arrangement by about 12 months to March 31, 2006, and augmented access to Fund resources by SDR 42.86 million (about US$64.5 million) to support the government's 2005 economic policies.
Following the Executive Board's discussion on Bolivia, Ms. Anne O. Krueger, First Deputy Managing Director and Acting Chair, said:
"Macroeconomic developments have been positive in 2004, in part reflecting the favorable global environment. Led by exports, economic activity has picked up and the current account surplus has been high. Inflation has increased, but remains well in single digits. Following deposit losses in the context of the introduction of the financial transactions tax, the financial situation has stabilized, and high levels of liquidity have allowed the authorities to place more securities in local currency and at longer maturities.
"The authorities aim to reduce the fiscal deficit after grants, and to limit nonconcessional financing. This will be achieved by already-adopted fuel price increases, higher revenues related to gas exports, and the full year impact of the financial transactions tax. Cuts in nonpriority spending will allow the initiation of high priority road projects. The government has expressed its willingness to take contingency measures, should the need arise, to ensure that 2005 fiscal targets are met.
"Monetary policy will aim to strengthen the international reserve position further, while gradually introducing greater flexibility to the exchange rate over the medium term. The program targets enhancement of debt management practices and the introduction of a two-way foreign exchange auction in 2005.
"Measures are being taken to reduce risks in the still-fragile and highly dollarized financial system. These include the gradual phase-in of additional loan provisioning; increases in reserve requirements on foreign currency deposits; and the preparation of a law on a deposit insurance scheme, which will be submitted to Congress later in the year.
"Maintaining a general framework conducive to foreign investment, and in particular the passage of a viable hydrocarbons bill, will be critical to attaining medium-term debt sustainability. The authorities are encouraged to continue to reach out to Congress to foster greater consensus on a hydrocarbons law that balances the call for greater taxation on hydrocarbons against the need to increase private investment in the sector.
"Looking forward, reaching a broad political and social consensus on policies to support growth and poverty reduction, including through the efficient development of Bolivia's rich hydrocarbons resources, is urgently needed to facilitate the development of a medium-term program that could form the basis for a revised Poverty Reduction Strategy Paper and a new three-year arrangement with the Fund as soon as possible," Ms. Krueger stated.
IMF EXTERNAL RELATIONS DEPARTMENT