Bolivia: Staff Report for the 2011 Article IV Consultation—Informational Annex
Author:
International Monetary Fund
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Publication Date:
02 Jun 2011
eISBN:
9781455272525
Language:
English
Keywords:
ISCR; CR; background color; food inflation; draft law; GDP deflator; IDB lending; financial asset; IMF-WB MDRI initiative; SDR equivalent; debt to the IDB; Debt relief
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Bolivia showed a solid macroeconomic performance in recent years, owing to its strong trade and prudent economic policies. IMF staff stressed the need to tighten monetary conditions through increasing the policy interest rate as a means to combat inflation. The Executive Board praised authorities for their sound macroeconomic management, and concurred that structural reform and increased investment will enhance economic growth. However, the crisis management framework could be strengthened with a deposit insurance scheme to protect small depositors in the event of bank liquidation.

Abstract

Bolivia showed a solid macroeconomic performance in recent years, owing to its strong trade and prudent economic policies. IMF staff stressed the need to tighten monetary conditions through increasing the policy interest rate as a means to combat inflation. The Executive Board praised authorities for their sound macroeconomic management, and concurred that structural reform and increased investment will enhance economic growth. However, the crisis management framework could be strengthened with a deposit insurance scheme to protect small depositors in the event of bank liquidation.

ANNEX 1. BOLIVIA: FUND RELATIONS

(As of April 11, 2011)

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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Formerly PRGF

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:

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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).

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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 Stand-by 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 defacto 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 stabilized arrangement against the U.S. dollar. 1 However, the authorities indicate that the de jure regime is a crawling peg. Since November 2010, the authorities resumed the negative crawling peg and the official selling rate has appreciated from Bs7.07 per U.S. dollar to Bs7.00.

X. Article IV Consultation. The last Article IV consultation was completed by the Executive Board on January 15, 2010 (Country Report No. 10/27). Bolivia is on a standard 12-month consultation cycle.

XI. Technical Assistance, 2006-11

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XII. Resident Representative: Mr. Luis Breuer took over the post of IMF resident representative in June 2009.

ANNEX 2. BOLIVIA: RELATIONS WITH THE WORLD BANK AND BANK-FUND COLLABORATION UNDER THE JMAP

A. Relations with the World Bank1

1. The Interim Strategy Note (ISN) that defines the World Bank Group’s support to Bolivia for fiscal years 2010 and 2011 is being implemented. The ISN, which will expire in June 2011, has a total envelope of US$151 million of concessional resources from the International Development Association (IDA) that have been allocated to two investment operations: (i) the Strengthening of the Statistical Capacity Project for US $50 million, approved by the Board in January 2011, which will finance the population and agricultural censuses, and the enhancement of the household survey; and (ii) the National Roads and Airport Infrastructure Project for US$100 million, expected to be approved in May 2011, that will support the development of the northern region of La Paz through the improvement of the San

Buenaventura-Ixiamas national road and the upgrading of the Rurrenabaque airport . The strategy has implemented the principles of selectivity—by supporting a smaller number of projects for larger amounts—and flexibility—by rapidly responding to government’s emerging requirements.

The ISN has also supported the smooth implementation of the existing portfolio.

The current portfolio comprises 12 investment projects for US$353 million, of which US$206 million remain undisbursed (Table 1), and two trust funds/global programs for US$6.7 million (Global Partnership on Output Based-Aid and Pilot Program for Climate Resilience). The portfolio is aligned to the pillars of the ISN: (i) productive development and support to production, (ii) sustainable development, (iii) human development, and (iv) governance and support to the public sector The execution and quality of the portfolio have significantly improved during the ISN period, having approached Bank-wide benchmarks; the country risk flag has also been removed.

Table 1

Bolivia: World Bank Portfolio

(as of February 2011)

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Undisbursed balances differ from the difference between committed and disbursed amounts due to variations in the exchange rates between SDRs and U.S. dollars.

2. The World Bank support to Bolivia also includes a comprehensive package of analytical and advisory activities. Under the umbrella of the current ISN core pieces of Economic and Sector Work (ESW) were delivered, including the Public Expenditure and Financial Accountability (PEFA) and the Distributional Impact of Food Inflation. An additional set of ESW is ready for delivery, including the Agricultural Public Expenditure Review, the Municipal and Service Finance Review, and the Financial Sector Review. A comprehensive package of non-lending technical assistance was also provided including: Urban Alliances, Water-related Adaptation to Climate Change and Variability, Multi-Dimensional Poverty, South-South Experience Exchange, Social Safety Nets IV, Public Sector Governance, and Support to the Ministry of Education.

3. The Bank has started discussions with the Government regarding the development of a medium term strategy.

Over the last years the Bank has supported Bolivia through two consecutive ISNs (FY07-0 8 and FY10-11) allowing the Bank to continue supporting the development of the country during a period of political, economic and institutional transition. Considering the development of the sociopolitical and economic context, the government has requested Bank support through a longer term engagement tool. In this context, the Bank started the development of a Country Partnership Strategy (CPS) for the following four years. The indicative envelope is still unknown, though it is expect ed that Bolivia would receive an IDA allocation similar to the current one; IDA hardened terms will be applied as Bolivia’s GNI per capital has remained above the operational cut-off for more than three consecutive years. In addition, access to non-conditional lending from the International Bank for Reconstruction and Development (IBRD) would be considered during the mid-point of the CPS timeframe.

4. The Bank and the Government are already working on the design of new investment projects that will be included under the umbrella of the upcoming strategy. The tentative lending program for the next two years includes projects that had already been identified in the ongoing ISN but were slipped due to the government’s prioritization. These include: the Agricultural Innovation and Services, the Rural Investment in Rural Areas and the Decentralized Infrastructure for Rural Transformation II.

B. IMF-Relations with the World Bank Under JMAP

5. The World Bank and IMF teams met in September 2010 to coordinate the work-plan on Bolivia for the next 12 months. The following priorities were identified:

  • Strengthening of the fiscal framework, in particular the reform of intergovernmental relations, transparent management of the hydrocarbon-related revenue and reinforcement of the multi-annual budget process. The public sector has weak capacity also on public sector management and procurement.

  • Maintaining adequate financial sector supervision. The financial sector is liquid and solvent. The current challenge is to gradually increase its depth, while strengthening supervision to maintain the health of the loan portfolios, and to fully develop a financial sector safety net.

  • Improving the business climate to bolster investment. Bolivia’s private investment rate remains significantly below the levels observed in the past decade and well be low the regional average. There is also the challenge to reconcile the need to maintain the role of the private sector with the government intention to increase the role of the state in the economy.

  • Reducing poverty. Significant challenges remain in the area of hum an development, including access to quality basic education and health, employability of low in come youth and social protection network.

6. It was agreed that the teams continue with the following division of labor:

  • Tax policy and administration. The Fund will continue to have the lead in collaborating with the authorities in this area.

  • Fiscal federalism. The Fund has been providing TA on the fiscal implications of the draft law on Administrative Autonomies and De centralization. Further, the Bank is providing advice on public investment management and coordination among different levels of government in the provision of public services.

  • Governance and budget framework. The Bank, in collaboration with the Ministry of Finance, and the IADB, has prepared an evaluation of Public Financial Management, following PEFA methodology. The assessment provides the basis for the government to prioritize and measure progress, and identify critical areas where reforms might be needed.

  • Social protection: The Bank will continue assisting the government in the area of social protection, health and education. The Bank is also providing technical assistance on poverty, to help both diagnosis and targeting of population that fails to reach minimum standards of multidimensional welfare.

  • Private sector development: The Bank will continue its analytical work and financing in the area of agricultural productivity, food security, support to small urban producers, rural development and community driven development.

  • Financial sector surveillance. The Fund will continue with the surveillance of the financial sector developments. In addition, the Bank will work with the Supervision Authority conduct analytical work on financial sector issues. An FSAP update took place in early 2011, covering financial stability and development issues.

ANNEX 3. BOLIVIA: RELATIONS WIT THE INTER-AMERICAN DEVELOPMENT BANK

1. As of December 31, 2010, the Inter-American Development Bank (IDB) had approved loans to Bolivia amounting to US$4.41 billion, with disbursements totaling US$3.45 billion. Bolivia’s outstanding debt to the IDB was approximately US$629.4 millions with undisbursed approved funds for US$668.5 millions. During the year net cash flows to the country were positive for second year in a row, a trend expected to continue in the base scenario to 2015. At the end of 2007, the IDB unilaterally joined the IMF-WB MDRI initiative, by writing 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.

2. After the last round of debt relief, the IDB is implemented a new criteria of allocation of concessional lending which is consistent with the application of the Debt Sustainability Framework. The IDB lending to Bolivia will follow the operational guidelines for concessional funds under the Fund of Special Operations performance-based allocation system. Parallel lending operations, modality that blends ordinary and concessional funding, will be the preferred lending instrument up to 2015.

3. The IDB and Bolivia are in the final phase of drafting a new country strategy covering the period from 2011-2015. Under the new country strategy, the IDB has decided to increase financial flows to Bolivia. Beginning 2011, Bolivia will be allocated 25 per cent of concessional element under IDB’s blended financial conditions, instead of the 30 percent approved up to 2010. The new country strategy included provisions and triggers for considering a new increase in the financial envelope trough an additional decrease in the concessional component element up to 20 percent. During 2010 Bolivia enjoyed an annual allocation of US$200.3 millions for 2010 , the base scenario for the period 2011-2015 is the approval of new loans US$252.0 millions per year.

4. Under the draft of the 2011-2015 Bank’s country strategy with Bolivia, the government and the IDB have agreed on making sustainable growth and poverty-inequality reduction as main objectives of their strategic engagement. In pursuit of this objective, the Bank will align its actions with those on Bolivia’s National Development Plan. The country strategy will target its interventions in the following sectors: (i) Transport; (ii) Water and sanitation; (iii) Energy; (iv) Early Childhood Development (ECD); (v) Health; (vi) Education; and (vii) Institutional and Sustainability Strengthening. As transversal sectors, the IDB will focus on climate change and indigenous population/diversity issues.

5. As of December 31, 2010 the portfolio of executing sovereign guaranteed operations in Bolivia consists of 30 loans, totaling US$1.18 billion, o which 49 percent has already been disbursed. The current executing port folio supports mostly transport, water and sanitation and energy infrastructure interventions. The undisbursed sovereign portfolio is concentrated (83 percent) in the above mentioned sectors. The non-sovereign guaranteed executing portfolio consists of 5 loans totaling US$128.0 million, of which 91.8 percent has already been disbursed. The Bank’s 2011 operative program contains a portfolio of sovereign guaranteed operations of 7 loans for a total amount of US$252.0 millions for the year, including US$62,0 million for programmatic budget supp ort. The rest of the approvals will be concentrated in water and sanitation, energy, health and ECD sectors. Nine additional loans for US$285.0 millions have been identified and are already in the Bank’s lending pipeline for the 2011 cycle.

6. 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. In the draft of the new country strategy several macroeconomics, institutional and regulatory risks are identify to pose direct and indirect challenges to the implementation scenarios of the Bank’s strategic engagement. Particularly relevant for the new country strategy are the financial implications of the country’s excessive dependence on oil revenue s; the weak policy implementation and institutional capacity affecting the public investments programs; and the problematic regulatory environment that keeps downgrading the investment climate of the country.

ANNEX 4. BOLIVIA: STATISTICAL ISSUES

(As of April 11, 2011)

A. Assessment of Data Adequacy for Surveillance

General: Data provision has some shortcomings, but is broadly ad equate for surveillance.

National Accounts: The National Institute of Statistics (INE) is revising t he 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).

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. Yearly information on wages is still compiled by INE.

Prices statistics: 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.

Government finance statistics: Annual data on the operations of the consolidated central government 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 IADB/WB, will help ensure proper moni toring of public sector financial operations including subnational fiscal operations, debt and social spending. It will also be important to improve on the reporting of the operations and debt of public enterprises.

Balance of payments: Despite recent improvements in the coverage of private capital flows and positions, 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.

B. Data Standards and Quality

Bolivia has participated in the General Data Dissemination System (GDDS) since November 2002. Data ROSC published on August 13, 2007.

Bolivia: Indicators Required for Surveillance

(As of April 12, 2011)

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

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

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 frequencies for goods only.

Includes external gross financial asset and liability positions vis-à-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

See Habermeier, et al., Revised System for the Classification of Exchange Rate Arrangements, WP/09/211.

1

Prepared by World Bank staff.

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Cover IMF Staff Country Reports
Bolivia: 2011 Article IV Consultation-Staff Report; Supplement and Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Bolivia
Author:
International Monetary Fund
Volume/Issue:
Volume 2011: Issue 124
Publisher:
International Monetary Fund
ISBN:
9781455272525
ISSN:
1934-7685
Pages:
76
DOI:
https://doi.org/10.5089/9781455272525.002