Press Release: IMF Approves Three-Year Arrangement Under the ESAF for Bolivia
IMF News, September 18, 1998
Source details
- Canonical URL
- Press Release: IMF Approves Three-Year Arrangement Under the ESAF for Bolivia
Other formats
Bibliographic details
- Published: September 18, 1998
Approval and financing
- The IMF approved a three-year loan under the Enhanced Structural Adjustment Facility (ESAF) equivalent to SDR 100.96 million (about US$138 million) to support Bolivia’s economic program for 1998–2001.
- The first annual loan is SDR 33.65 million (about US$46 million), to be disbursed in two equal semiannual installments; the first installment is available immediately.
- The Executive Board agreed that Bolivia has met the requirements for receiving from the IMF US$29 million out of a total package of US$448 million in debt relief from its official external creditors, under the Initiative for Heavily Indebted Poor Countries (HIPC).
Background and recent performance
- Bolivia experienced hyperinflation in 1984–85 and a 10 percent cumulative decline in real GDP in 1980–85; four successive governments carried out a reform strategy since 1985.
- By 1997:
- Twelve-month inflation had fallen from a peak of 23,500 percent in September 1985 to 18 percent in December 1990, and to less than 7 percent by end-1997.
- Economic activity rose at 4.2 percent in 1997.
- External debt burden had improved and international reserves had reached reasonably comfortable levels.
Medium-term strategy (1998–2001) — objectives and projections
- Growth:
- Economic growth under the program should increase from 4.5-5 percent in 1998 to 5.5-6 percent by 2000.
- Reserves and inflation:
- Gross international reserves should remain at about 6½ month of imports.
- Inflation should decline to 6 percent in 1999 and 5.5 percent in 2000.
- Fiscal balances:
- Combined public sector deficit is expected to rise to 4.1 percent of GDP in 1998 due to structural reform costs and unexpected temporary expenditures for disaster relief.
- The deficit should decline to 3.6 percent of GDP in 1999 and 2 percent of GDP by 2002.
- The nonpension fiscal balance should benefit from improved tax administration and expenditure restraint.
- External current account:
- Projected to remain above 8 percent of GDP in 1998, then decline to 7 percent in 1999 and 4 percent in 2002, reflecting a surge in foreign direct investment in the export sector.
Structural reforms — priorities and actions
- Core emphasis: structural reform with new focus on social expenditure, fiscal decentralization, and governance.
- Financial sector: complete reform to create full confidence in the financial system.
- Privatization: government plans to privatize all remaining public enterprises, including those owned by the armed forces; priority to privatize state oil company YPFB’s refineries by June 1999.
- Markets and labor:
- Deepen domestic capital markets.
- Make labor markets more flexible through changes in the labor law that eliminate disincentives to employment in the formal sector; national dialogue with business, labor, and political groups has begun.
- Governance improvements:
- Establish three legal institutions—the Judicial Council, the Ombudsman, and the Constitutional Court.
- Implement a comprehensive customs reform.
Addressing social needs
- HIPC: Government observed the social policy targets monitored under the HIPC initiative and intends to adhere to the target established through 2000.
- Education:
- Increase responsibility of local governments for education.
- Reward good teaching through a merit pay system.
- Rehabilitate schools and ensure an adequate supply of learning materials.
- Health:
- Increased spending on basic health care included in the government’s five-year national plan.
- Contemplates expanded access to primary and preventive care for the poor and improved coordination across different levels of government.
The challenge ahead
- Recent surge in investment, financed in important part by foreign direct investment, suggests improving growth prospects.
- Crucial to ensure a greater share of investment is financed by national savings to keep the external current account deficit on a sustainable path.
Key institutional and IMF-related facts
- Bolivia joined the IMF on December 27, 1945; its quota is SDR 126.2 million (about US$173 million).
- Bolivia’s outstanding use of IMF credits totals SDR 181 (about US$248 million).
- ESAF terms (as described in the release):
- ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with a 5½-year grace period.
- HIPC Initiative (as described in the release):
- Entails coordinated action to reduce to sustainable levels the external debt burden of heavily indebted poor countries which pursue IMF- and World Bank-supported adjustment and reform programs.
Selected economic indicators (exact figures from the release)
- Income and Prices (annual percentage change)
- Real GDP: 1994: 4.7; 1995: 4.1; 1996: 4.2; 1997: (not listed for 1997 in this row)
- Real domestic demand: 1994: 0.9; 1995: 4.6; 1996: 4.9; 1997: 7.1; 1998: 6.6
- CPI inflation (end-of-period): 1994: 8.5; 1995: 12.6; 1996: 8.0; 1997: 6.7; 1998: 6.5
- Investment and savings (percent of GDP)
- Total investment: 1994: 14.9; 1995: 15.6; 1996: 16.5; 1997: 18.7; 1998: 18.8
- Gross national savings: 1994: 11.2; 1995: 10.6; 1996: 11.3; 1997: 10.5; 1998: (not listed)
- Combined public sector (percent of GDP)
- Overall balance: 1994: -3.0; 1995: -1.8; 1996: -1.9; 1997: -3.3; 1998: -4.1
- Foreign financing: 1994: 3.7; 1995: 3.6; 1996: 2.5; 1997: 2.7; 1998: 2.6
- Domestic financing: 1994: -0.7; 1995: -0.6; 1996: 0.5; 1997: 1.5; 1998: (not listed)
- Money and credit (annual percentage change, unless otherwise stated)
- M3: 1994: 21.6; 1995: 9.5; 1996: 24.9; 1997: 17.1; 1998: 14.5
- Credit to private sector: 1994: 24.0; 1995: 13.6; 1996: 21.1; 1997: 14.3; 1998: (not listed)
- External sector
- Current account balance (US$ million): 1994: -219; 1995: -335; 1996: -385; 1997: -647; 1998: -702
- Current account (percent of GDP): 1994: -3.7; 1995: -5.0; 1996: -5.1; 1997: -8.1; 1998: -8.2
- Of which: trade balance (US$ million): 1994: -279; 1995: -301; 1996: -447; 1997: -684; 1998: -721
- Capital account balance (US$ million): 1994: 208; 1995: 257; 1996: 727; 1997: 750; 1998: 677
- Of which: Foreign direct investment (US$ million): 1994: 90; 1995: 177; 1996: 426; 1997: 591; 1998: 623
- Gross official reserves (months of imports): 1994: 5.7; 1995: 5.6; 1996: 7.3; 1997: 7.5; 1998: 6.8
- Public sector external debt (US$ billion): 1994: 4.8; 1995: 4.5; 1996: 4.3; 1997: (not listed); 1998: (not listed)
- Debt service ratio (percent of exports of goods and non-factor services, after HIPC assistance): 1994: 35.3; 1995: 42.2; 1996: 25.6; 1997: 26.1; 1998: 23.0
Press Release No. 98/41. September 18, 1998. International Monetary Fund.