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Economy of Bolivia
 
 
 

General

Bolivia has the lowest GDP per capita figures in South America even though the country is rich in natural resources. Bolivia's 2002 gross domestic product (GDP) totalled $7.9 billion and conomic growth is about 2.5% a year.

Bolivia’s current lackluster economic situation can be linked to several factors from the past three decades. The first major blow to the Bolivian economy came with a dramatic fall in the price of tin during the early 1980s, which impacted one of Bolivia’s main sources of income and one of its major mining industries. The second major economic blow came at the end of the Cold War in the late 1980s and early 1990s as economic aid was withdrawn by western countries who had previously tried to keep a market-liberal regime in power through financial support.

Since 1985, the government of Bolivia has implemented a far-reaching program of macroeconomic stabilisation and structural reform aimed at maintaining price-stability, creating conditions for sustained growth, and alleviating scarcity. A major reform of the customs-service in recent years has significantly improved transparency in this area. The most important structural changes in the Bolivian economy have involved the capitalisation of numerous public-sector enterprises.

Parallel legislative reforms have locked into place market-liberal policies, especially in the hydrocarbon and telecommunication sectors, that have encouraged private investment. Foreign investors are accorded national treatment, and foreign ownership of companies enjoys virtually no restrictions in Bolivia.

Bolivia has the second largest natural gas reserves in South America. The government has a long-term sales agreement to sell natural gas to Brazil through 2019. The government expects to hold a binding referendum in 2004 on plans to export natural gas.

In April 2000, Bechtel signed a contract with Hugo Banzer, the former president of Bolivia, to privatise the water-supply in Bolivia's third-largest city, Cochabamba. Shortly thereafter, the company tripled the water-rates in that city, an action which resulted in protests and rioting among those who could no longer afford clean water. Drawing water from community wells or gathering rainwater was made illegal. Amidst Bolivia's nationwide economic collapse and growing national unrest over the state of the economy, the Bolivian government was forced to withdraw the water contract.

Bolivian exports were $1.3 billion in 2002, from a low of $652 million in 1991. Imports were $1.7 billion in 2002. Bolivian tariffs are a uniformly low 10%, with capital equipment charged only 5%. Bolivia's trade deficit was $460 million in 2002. Bolivia's trade with neighbouring countries is growing, in part because of several regional preferential trade-agreements it has negotiated. Bolivia is a member of the Andean Community and enjoys nominally free trade with other member countries.

Agriculture accounts for roughly 15% of Bolivia's GDP. Soybeans are the major cash crop, sold into the Andean Community market.

Bolivia's government remains heavily dependent on foreign assistance to finance development-projects. At the end of 2002, the government owed $4.5 billion to its foreign creditors, with $1.6 billion of this amount owed to other governments and most of the balance owed to multilateral development banks. Most payments to other governments have been rescheduled on several occasions since 1987 through the Paris Club mechanism. External creditors have been willing to do this because the Bolivian government has generally achieved the monetary and fiscal targets set by IMF programs since 1987, though economic crises in recent years have undercut Bolivia's normally good record. The rescheduling of agreements granted by the Paris Club has allowed the individual creditor-countries to apply very soft terms to the rescheduled debt. As a result, some countries have forgiven substantial amounts of Bolivia's bilateral debt. The US government reached an agreement at the Paris Club meeting in December 1995 that reduced by 67% Bolivia's existing debt-stock. The Bolivian government continues to pay its debts to the multilateral development banks on time. Bolivia is a beneficiary of the Heavily Indebted Poor Countries (HIPC) and Enhanced HIPC debt-relief programs, which by agreement restricts Bolivia's access to new soft loans.


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