Public Information Notice: IMF Executive Board Reviews Bolivia's Performance Under Past Fund-Supported Programs

IMF News, April 15, 2005

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Public Information Notice: IMF Executive Board Reviews Bolivia's Performance Under Past Fund-Supported Programs

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Bibliographic details

• Published: April 15, 2005

Background

• Publication date: April 15, 2005.
• Review date reported: On April 8, 2005, the Executive Board of the International Monetary Fund (IMF) reviewed Bolivia's experience with IMF-supported programs since 1994, based on an Ex Post Assessment of Longer Term Program Engagement.
• Note in source: "This PIN summarizes the views of the Executive Board as expressed during the April 8, 2004 Executive Board discussion based on the staff report."
• Context:
  • Structural reforms in the 1980s and 1990s were among the most extensive in Latin America; economic growth increased and social indicators improved significantly.
  • Trend growth did not improve as much as expected and poverty remains very high.
  • Between 1998 and 2002 the economy suffered a series of shocks: average per capita income growth turned negative, the fiscal situation unraveled, debt increased sharply, and in 2002-2003 there were several episodes of financial instability.
  • Growth recovered in 2004, "in part driven by favorable terms of trade," but the economic and financial situation remained fragile.

Ex Post Assessment — Main reasons Bolivia "did not do better"

• The Ex Post Assessment concludes Bolivia did not do better for four main reasons:
  • "(i) governance problems and inadequate government services, which contributed to a poor business environment and inhibited growth;"
  • "(ii) the adverse shocks of 1998-2002, which harmed Bolivia both directly and by generating social pressures that made reforms more difficult and led to persistent increases in government spending;"
  • "(iii) incomplete or delayed implementation of critical financial and fiscal-structural reforms;"
  • "(iv) continuing financial dollarization, which remains a source of financial vulnerability."
• The assessment states: "Significant progress in these areas will require a social consensus for reforms and institutional changes over the medium-term which has so far been elusive."

Executive Board Assessment — Findings and policy recommendations

• Directors agreed that to address Bolivia's main economic problems—"insufficient growth, and fiscal and financial vulnerabilities"—fundamental institutional and structural reforms are needed.
• Recommended reforms and policy priorities (as stated by Directors):
  • "improving governance,"
  • "reducing and better managing public expenditure,"
  • "creating a more equitable and efficient tax system,"
  • "strengthening the banking system,"
  • "beginning a process of financial de-dollarization."
• Programmatic view:
  • "In that context, Directors considered that extension of the Stand-By Arrangement will be helpful as a bridge toward a possible PRGF arrangement, while the authorities build sufficient social consensus over medium-term policies."

Selected economic and financial indicators (highlights drawn from table for 1995–2004)

• Real GDP (annual percentage change): 4.1 (average shown in table).
• CPI inflation (end-of-period): 12.3 (1995), 12.6 (1996), 7.9 (1997), 6.7 (1998), 3.1 (1999), 3.4 (2000), 0.9 (2001), 2.4 (2002), 3.9 (2003), 4.6 (2004).
• Gross domestic investment (percent of GDP): 15.1 (average), 15.2 (1995), 16.2 (1996), 19.6 (1997), 23.6 (1998), 18.8 (1999), 18.3 (2000), 14.2 (2001), 14.7 (2002), 11.1 (2003), 12.7 (2004).
• Gross national savings (percent of GDP): 9.7 (average), 10.2 (1995), 11.7 (1996), 15.8 (1997), 12.9 (1998), 13.0 (1999), 10.8 (2000), 10.6 (2001), 15.7 (2002).
• Combined public sector overall balance (percent of GDP): -4.4 (average), -1.8 (1995), -1.9 (1996), -3.3 (1997), -4.7 (1998), -3.5 (1999), -3.7 (2000), -6.9 (2001), -8.9 (2002), -8.1 (2003), -5.7 (2004).
• Nonfinancial public sector debt (percent of GDP): 72.5 (1990-94), 65.7 (1995), 60.5 (1996), 60.1 (1997), 59.7 (1998), 58.8 (1999), 53.7 (2000), 61.6 (2001), 73.8 (2002), 74.6 (2003).
  • External (incl. IMF) component: 57.4 (1990-94), 50.6 (1995), 45.9 (1996), 45.3 (1997), 49.7 (1998), 47.3 (1999), 36.1 (2000), 42.4 (2001), 51.3 (2002), 52.6 (2003).
  • Domestic component: 15.0 (1990-94), 14.9 (1995), 17.6 (1996), 19.3 (1997), 22.5 (1998), 22.0 (1999).
• Current account (US$ million): -5.5 (1995), -7.0 (1996), -7.9 (1997), -5.9 (1998), -5.3 (1999), -3.4 (2000), -4.2 (2001).
• Direct investment (percent of GDP): 11.2 (1990-94), 8.4 (1995), 8.3 (1996), 8.7 (1997), 1.3 (2003 as shown in table).
• Merchandise export volume, percent change: 10.3 (1995), 13.2 (1996), 6.0 (1997).
• Merchandise import volume, percent change: -0.3 (1995), 29.3 (1996), 25.0 (1997), 14.5 (1998), -10.6 (1999), -5.4 (2000), 3.3 (2001), -10.1 (2002).
• Terms of trade, percent change (deterioration -): -6.5 (1995), -9.1 (1996), 4.8 (1997), -2.7 (1998), -1.4 (1999).
• Gross international reserves (months of imports of goods and services): 4.5 (1995), 5.9 (1996), 7.6 (1997), 8.0 (1998), 6.5 (1999), 6.8 (2000).
• M3 growth (annual percentage change): 17.3 (average), 13.7 (1995), -3.0 (1996) [table labels imply at current exchange rates].
• Credit to private sector (annual percentage change): 39.6 (average), 19.2 (1995), 23.8 (1996), -2.6 (1997), -8.0 (1998), -1.0 (1999), -0.5 (2000).
• Yield on T-bills in Bolivianos (e.o.p., percent): 27.9 (1995), 26.6 (1996), 16.5 (1997), 12.2 (1998), 17.2 (1999), 10.9 (2000).
• Yield on T-bills in U.S. dollars (e.o.p., percent): 10.1 (1995), 14.8 (1996), 8.6 (1997), 9.1 (1998), 4.9 (1999), 6.2 (2000), 4.3 (2001).
• Banking system deposits (annual change): 15.3 (1995), 28.7 (1996), 17.7 (1997), -4.3 (1998), 0.3 (1999).
• Foreign currency deposits (percent of total deposits): 80.7 (1995), 80.4 (1996), 92.1 (1997), 91.9 (1998), 92.2 (1999), 92.9 (2000), 92.6 (2001), 90.6 (2002), 86.5 (2003).
• Non-performing loans (percent of total loans): 6.6 (1995), 11.6 (1996), 16.7 (1997), 14.0 (1998).
• Bolivianos/U.S. dollar (end-of-period exchange rate): 4.94 (1995), 5.19 (1996), 5.36 (1997), 5.65 (1998), 6.00 (1999), 6.40 (2000), 6.83 (2001), 7.50 (2002), 7.84 (2003), 8.06 (2004).
• REER (percentage change during year): 1.1 (1995), 2.2 (1996), -1.6 (1997), -8.5 (1998), -5.2 (1999).

Sources and notes

• Sources cited in table: Central Bank of Bolivia; Ministry of Finance; and Fund staff estimates.
• Note in table: "1/ Reflects debt relief under the original and enhanced HIPC initiatives."

IMF External Relations Department — Public Affairs; Public Information Notice dated April 15, 2005.

References

• Bolivia and the IMF
• Public Information Notices
• Article IV
• https://www.imf.org/en/home