Bolivia: Staff Report for the 2008 Article IV Consultation—Informational Annex
Author:
International Monetary Fund
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Publication Date:
29 Jan 2009
eISBN:
9781451805857
Language:
English
Keywords:
ISCR; CR; government; NPV; CBB authorities; debt ratio; financial asset; SDR equivalent; lending operation; Debt relief; Reserve assets; Monetary statistics; Global
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This 2008 Article IV Consultation highlights that Bolivia’s overall fiscal position has improved in 2008. Booming hydrocarbon and mining exports, together with high remittance inflows, led to a record-high current account surplus and large reserve accumulation, with major pressures on monetary/exchange rate policy during the first three quarters of 2008. Executive Directors have noted that strong hydrocarbon and mining exports have continued to support Bolivia’s growth and macroeconomic performance. Directors have also emphasized the importance of well-designed structural reforms for further strengthening Bolivia’s fiscal position.

Abstract

This 2008 Article IV Consultation highlights that Bolivia’s overall fiscal position has improved in 2008. Booming hydrocarbon and mining exports, together with high remittance inflows, led to a record-high current account surplus and large reserve accumulation, with major pressures on monetary/exchange rate policy during the first three quarters of 2008. Executive Directors have noted that strong hydrocarbon and mining exports have continued to support Bolivia’s growth and macroeconomic performance. Directors have also emphasized the importance of well-designed structural reforms for further strengthening Bolivia’s fiscal position.

Appendix 1. Bolivia—Fund Relations

(As of November 30, 2008)

I. Membership Status: Joined December 27, 1945; accepted its obligations under Article VIII on June 5, 1967. The exchange system is free of restrictions on current international payments and transfers.

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans: None

V. Financial Arrangements:

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VI. Projected Obligations to the Fund: (SDR million; based on existing use of resources and present holdings of SDRs):

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VII. Implementation of HIPC Initiative:

VII. Implementation of HIPC Initiative:

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Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

The Multilateral Debt Relief Initiative (MDRI) provides 100 percent debt relief to eligible member countries that are qualified for the assistance. The debt relief covers the full stock of debt owed to the Fund as of end-2004 which remains outstanding at the time the member qualifies for such debt relief. The MDRI is financed by bilateral contributions and the Fund’s own resources, as well as the resources already disbursed to the member under the HIPC Initiative (see Section VII above).

Eligible Debt

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VIII. Safeguards Assessment. Under the Fund’s safeguards assessment policy, the Central Bank of Bolivia (CBB) was subject to an assessment with respect to the April 2, 2003 Standby Arrangement (SBA). A safeguards assessment was completed on June 27, 2003, and while no systemic risks with the CBB’s safeguards were identified, uncertainties were expressed about the de facto lack of operational independence and program monetary data. An update assessment was completed on September 27, 2004 in conjunction with an augmentation of the SBA. This assessment confirmed that measures had been implemented to address all previously identified vulnerabilities, except for those requiring a change in the central bank law. Currently, CBB is not subject to the policy.

IX. Exchange Arrangement. The Bolivian currency is the Boliviano and the exchange rate regime is a crawling peg. The central bank holds a daily foreign exchange auction, accepting all bids that are at least equal to the central bank’s minimum price. If acceptable bids exceed the amount offered for auction, the lowest acceptable bids are prorated so as to exhaust the amount offered. The minimum price is adjusted from time to time in light of the evaluation of Bolivia’s real exchange rate with respect to Bolivia’s key trading partners. On November 30, 2008, the official selling rate was US$7.07 per U.S. dollar.

X. Article IV Consultation. The last Article IV consultation was completed by the Executive Board on July 13, 2007 (IMF Country Report No. 07/248). Bolivia is on a standard 12-month consultation cycle.

XI. Technical Assistance, 2004-08

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XII. Resident Representative. Mr. Esteban Vesperoni took over the post of IMF resident representative in February 2006.

Appendix 2. Bolivia: Relations with the World Bank1

1. Based on preliminary conversations with the Government, the World Bank Group has begun the preparation of a new strategy that will conduct the Bank’s support to Bolivia in the upcoming years. The Interim Strategy Note (ISN) approved in November 2006 allowed supporting to Bolivia during FY07 and FY08. This support included lending operations, trust funds, analytical work and technical assistance in areas where the Bank and the Government agreed upon: enhancing good governance and transparency; fostering jobs through growth; and providing better services to the poor. This strategy concluded in June 2008, thus the World Bank and the Government have begun conversations to define areas and instruments that will be included in the new strategy in order to continue and deepen the Bank’s long-term support to Bolivia’s development priorities. Preliminary discussions focused on extreme poverty eradication.

2. The World Bank’s portfolio in Bolivia comprises 11 investment projects for a total amount of US$272.8 million of which US$196.2 million remain undisbursed. Under the last ISN, all IDA14 resources allocated to Bolivia (US$140 million) were committed in eight investment projects approved over the last two years. Out of the 11 projects, three were approved under the FY04-05 Country Assistance Strategy (CAS), seven were conceived under the last ISN, and one was incorporated at the Government’s request to address the impacts of flooding caused by the natural disasters of El Niño and La Niña. The portfolio, entirely financed with IDA resources, includes the following projects:

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3. Additionally, the World Bank program includes Trust Funds and Global Programs. The Bank is currently managing five grants amounting to $8.7 million, which support institutional strengthening and project preparation and execution. These include: Global Partnership on Output Based Aid ($5.2 million), GAIN Global Food Fortification ($2.6 million), Strengthening of the Deputies Chamber Finance Commission ($0.2 million), Capacity Building to Support Carbon Finance Transactions ($0.5 million), and Strengthening Donor Aid Coordination ($0.1 million).

4. Under the last ISN, the World Bank concluded the following studies:

  • Policies for Increasing Firms’ Formality and Productivity that assesses productivity constraints faced by Bolivian firms and policies to encourage their formalization and productivity. This study triggered an additional piece of work that assesses the informality among women entrepreneurs.

  • Two phases of the Programmatic Social Protection Study that presents a diagnosis on poverty, vulnerability and exclusion, an assessment of existing social protection programs, the involvement of sub-national governments and communities in the provision of social services, an in-depth analysis of financing to the sector and the urban dimension of social protection. The study provides recommendations for the design and implementation of the Government’s Social Protection Strategy. This study contributed to the design of the Investing in Children and Youth Project.

  • Strengthening Competitiveness for Export Diversification and Inclusive Growth that evaluates the trade policy and its effects on non-traditional exports.

  • Operational Review of the Fondo de Inversión Productiva y Social that evaluates the core capabilities and operational and organizational elements required for the agency to successfully fulfill its mandate.

5. While the preparation of the new strategy takes place, the Bank and the Government have decided to advance in the design of two investment projects that were in the pipeline, as well as in the development of economic and sector works. The Government and the Bank agreed on postponing three projects originally included in the last ISN – Job Creation and Competitiveness, Building Government Monitoring and Evaluation Systems, and Strengthening State Efficiency and Transparency. Two of these projects have advanced in their preparation, in close coordination with the Government (Job Creation and Competitiveness and Building Government M&E Systems). Moreover, an additional financing for the Rural Alliances Project is under consideration. In terms of analytical and advisory activities, studies on municipal services and finances, and on food inflation are currently being prepared to be delivered in FY09.

Appendix 3. Bolivia: Relations with the Inter-American Development Bank 1

6. As of November 30, 2008, the Inter-American Development Bank (IDB) had approved loans to Bolivia amounting to US$4.11 billion, with disbursements totaling US$3.34 billion. Bolivia’s outstanding debt to the IDB was approximately US$530.0 millions with undisbursed approved funds for US$460.0 millions. Differently from what happened in the first half of the decade, net cash flows to the country were negative during 2006 and 2007, a trend expected to continue during 2008. In the recent past the IDB financial engagement with the country included successive debt relief agreements, first under HIPC initiative, and then under it’s own initiative following the MDRI. The last round of debt relief wrote off a total of US$741.1 million in principal payments and US$307.3 millions of future interest payments, generating an estimated annual fiscal space of more than US$18.0 millions on average.

7. The IDB is implementing new criteria of allocation of concessional lending. Consistent with the application of the Debt Sustainability Framework and after the last round of debt relief, new IDB lending to Bolivia will be following newly adopted operational guidelines for concessional funds under the Fund of Special Operations performance-based allocation system. Parallel lending operations, modality that features differential combination between ordinary and concessional funding, will be enacted as the preferred lending instrument up to 2015. During the 2007-2008 transitional period, the concessional element of the blend will amount 37% of an estimated annual allocation of US$74.3 millions.

8. Under the 2008-2010 Bank’s country strategy with Bolivia, the government and the IDB have agreed on keeping sustainable poverty reduction as main objective of their strategic engagement. In pursuit of this objective, the Bank has aligned its actions with those contained by Bolivia’s National Development Plan in order to achieve a grater degree of coordination among international cooperation entities acting in Bolivia, while better targeting priority areas in the poverty reduction action plan. Four main strategic areas are proposed under the new strategy: (i) productivity, competitiveness and productive infrastructure, to promote economic growth consistent with poverty reduction targets; (ii) water, sanitation and social development to target high-poverty municipalities; (iii) building opportunities for the majority and development with identity to enhance the participation of the bottom tiers of the income distribution; and (iv) institutional strengthening of the state at both national and sub-national levels, to achieve higher efficiency of the public sector while promoting the decentralization process.

9. As of November 30, 2008 the portfolio of executing sovereign guaranteed operations in Bolivia consists of 28 loans totaling US$826.0 millions, of which 45% has already been disbursed. The current executing portfolio supports mostly water and sanitation, education, health, infrastructure and productivity interventions. The undisbursed sovereign portfolio is concentrated (53%) in the transportation sector. The non-sovereign guaranteed executing portfolio consists of 3 loans totaling US$114.0 millions, of which 81.6% has already been disbursed. Seven additional loans for US$130.0 millions have been identified and are in the Bank’s lending pipeline.

10. The conditions for the strategy’s implementation remain complex, with important institutional, social and political definitions yet to be clarified thus representing direct and indirect risks to the fulfillment of the strategy objectives. Widespread economic reform reorientation, macroeconomic and financial stability, vulnerability in front of changing external conditions and natural disasters risks also pose indirect challenges to the implementation scenarios of the Bank’s strategy. In the prospective risk assessment of the new strategy, weak policy implementation and institutional capacity has been identified as additional risk factors to be mitigated in the implementation of the Bank’s strategic program with Bolivia.

Appendix 4. Bolivia: Statistical Issues

Data provision to the Fund has some shortcomings, but is broadly adequate for surveillance. A data ROSC mission in early 2007 confirmed advances in recent years, and reiterated the existence of data shortcomings that may hamper the formulation of appropriate policies. Bolivia has participated in the GDDS since November 2000 and plans to subscribe to the SDDS are at an advanced stage.

I. Real Sector

  • National accounts. The National Institute of Statistics (INE) has begun a thorough revision of the national accounts statistics, including the updating of the base year (currently dating from 1990) and an intensified implementation of the System of National Accounts 1993 (SNA 1993). The National Accounts Directorate (NAD) is in the process of compiling a set of integrated economic accounts by institutional sectors and sub sectors. The IMF Statistics Department has provided technical assistance to INE on the ongoing revision of Bolivia’s national accounts.

  • Labor market. The quality of the household and employment surveys has deteriorated in the last few years, due mainly to financial constraints. The quarterly employment survey was discontinued in 2003, leading to a lack of quarterly information on unemployment, employment and wages.

  • Prices. In April 2008, INE released a revamped consumer price index (CPI) covering the nine largest cities and based on expenditure weights derived from a 2003/04 household budget survey. Industrial producer price indices and external trade unit values are compiled by INE, but are in need of revision as regards concepts and definitions consistent with SNA 1993, as well as treatment of seasonal products, missing items, quality changes, and introduction of new products.

II. Fiscal Sector

  • The Ministry of Finance (MoF) provides timely information on operations for the consolidated general government (central government and decentralized entities), public enterprises and the central bank. The MoF also provides annual data to STA on the operations of the consolidated central government, and regional and local governments for publication in Government Finance Statistics Yearbook. However, these data do not cover all operations of decentralized agencies and operations channeled through special funds. The ongoing implementation of a comprehensive financial management system, with funding from the IDB, will help ensure proper monitoring of public sector financial operations including local debt and social spending.

III. External Sector

  • The classification of accounts is broadly in accordance with the fifth edition of the Balance of Payments Manual. Although quarterly balance of payments data are available before the end of the year, these data are submitted to STA only once a year. The BCB also provides monthly trade data to the Fund for publication in International Financial Statistics (IFS) upon request, Fund staff has access to more detailed and timely balance of payments and external debt data.

  • The authorities have disseminated on the World Bank QEDS website gross liabilities of short and long-term private debt. There have been some improvements in the coverage of private capital flows and positions since the foreign direct investment survey was undertaken in 2007 by the central bank. However, as noted by the January 2007 Data ROSC mission, the coverage of certain services and financial transactions in the balance of payments needs to be expanded.

  • Although not yet an SDDS subscriber, Bolivia is disseminating the Data Template on International Reserves and Foreign Currency Liquidity. STA has extended an invitation to Bolivia to disseminate its Reserves Template on the Fund’s website.

IV. Monetary Sector

  • Coverage, sectorization, and timeliness of monetary statistics are in line with the Monetary and Financial Statistics Manual. Monetary data are based on the balance sheets of the central bank, commercial banks, credit unions, savings and loans associations, and private investment funds. The survey has been expanded to cover the investment funds managing societies (SAFIS). The BCB has also started compiling a monthly survey on the other financial corporations, with data from pension funds, insurance corporations, Nacional Financiera Boliviana (NAFIBO), and Fondo de Desarrollo del Sistema Financiero (FONDESIF). This survey will help improve the quarterly flow of funds accounts currently compiled by the BCB.

Bolivia: Indicators Required for Surveillance

(As of December 2, 2008)

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Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Bolivia does not compile central government fiscal data.

Guaranteed non-financial public sector debt. Including currency and maturity composition.

Monthly frequency for goods only.

Includes external gross financial asset and liability positions vis-á-vis nonresidents.

Reflects the assessment provided in the data ROSC (published on August 13, 2007, and based on the findings of the mission that took place during January 24-February 7, 2007) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 10, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

1

Prepared by World Bank staff.

1

Prepared by IDB staff.

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Cover IMF Staff Country Reports
Bolivia: 2008 Article IV Consultation: Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Bolivia
Author:
International Monetary Fund
Volume/Issue:
Volume 2009: Issue 027
Publisher:
International Monetary Fund
ISBN:
9781451805857
ISSN:
1934-7685
Pages:
58
DOI:
https://doi.org/10.5089/9781451805857.002