Press Release No. 13/455

Press Release: IMF Mission Concludes Article IV Consultation Visit to Bolivia

November 18, 2013

An International Monetary Fund (IMF) team visited of Bolivia from November 6 to 18, 2013 in the context of the annual consultations held with IMF members¹. The team met with the Minister of Economy and Public Finance, Luis Arce, the President of the Central Bank, Marcelo Zabalaga, and other senior public officials and representatives of the private sector.

At the conclusion of the visit today, Ms. Ana Corbacho, Mission Chief for Bolivia, issued the following statement in La Paz:

“Since the mid-2000s, Bolivia's macroeconomic performance has been very strong. Macroeconomic stability and social policies have contributed to a significant increase in average personal incomes and have helped to reduce poverty and income inequality. Prudent macroeconomic policies have allowed safeguarding a portion of the revenues from the boom in international hydrocarbon prices, thus improving the economy’s capacity to weather external shocks. As a result, the Bolivian economy was one of the few in Latin America to record positive growth during the 2008-2009 global crisis and to maintain that resilience throughout the following years.

“For 2013, the IMF mission expects the Bolivian economy to grow by around 6.7 percent, the highest growth rate in the past decade, driven primarily by higher volumes of exports of natural gas and a strong contribution from public investment. For 2014, the economy is expected to grow at a more moderate pace owing to slightly less favorable terms of trade. However, there are regional and global factors that pose a downside risk, two of the most important being a sharp drop in international prices for hydrocarbons or a slowdown in trade with neighboring countries. Nevertheless, Bolivia's ample international reserves should allow the authorities to mitigate the adverse effects of external shocks if they materialize. Also, the efforts underway to industrialize the commodities sector and increase the value added of exports could help stimulate potential growth and economic diversification.

“Looking ahead, one of the most important challenges for the Bolivian economy is to ensure that the recent rise in the prices of a few foodstuffs does not translate into a general increase in inflation. Our projections suggest that the annual inflation rate will stand at around 7.5 percent at end-2013 and that it could decline gradually in 2014 based on existing policies. The authorities have responded to the inflationary shock by withdrawing liquidity from the financial system, allowing interest rates to gradually rise, and slowing consumer lending. The results of these measures are beginning to be seen, with inflation moderating in October. If inflationary pressures prove to be more persistent than anticipated, it will be necessary to continue to tighten monetary conditions.

“The IMF team also considers it very important to strengthen the price stability mandate of the Central Bank of Bolivia. The recent practice of involving the central bank in lending to public enterprises is counterproductive for the solvency of the bank and for macroeconomic stability in the long term. It is possible to create other mechanisms for lending to public enterprises, such as a sovereign fund administered by the Ministry of Economy and Public Finance. The FINPRO fund could perform this function, as long as it is provided with a strong governance structure and its activities are guided by clear investment and performance criteria that ensure that benefits accrue to both current and future generations.

“The favorable growth outlook points to the importance of maintaining a prudent fiscal policy that does not over-stimulate aggregate demand. For 2013, we expect the nonfinancial public sector fiscal deficit to stand at around 0.5 percent of GDP. For 2014, fiscal policy should ideally have a neutral impact on domestic demand, which will require another fiscal surplus. It is also essential that the authorities adopt a medium-term fiscal framework that safeguards intergenerational equity and at the same time creates a fiscal margin for investment and social policies that have a high impact on development. Priority should be given to exploring new natural gas deposits and offsetting the potential impact of the depletion of hydrocarbon resources, projected for 2023. The success of these efforts requires the establishment of a clear, stable legal framework and a favorable business climate that can attract higher levels of private investment.

“The Bolivian financial system remains solid and well capitalized. Nevertheless, the new Financial Services Law could pose a risk to financial stability. The law contains various constructive provisions that strengthen the safety net and the integrity of the financial system. The law's emphasis on the objectives of financial inclusion and productive development are also appropriate, but the instruments chosen (e.g., interest rate caps and minimum portfolio quotas) could lower the profitability and capitalization of the financial system and lead to a reduction in the funds available for lending over the medium term. Additionally, the price and credit allocation distortions could complicate the conduct of monetary policy and contribute to the over-indebtedness of certain segments of the population. The objectives set out in the law could be achieved using other instruments that would mitigate the systemic risks associated with financing small customers or those with little financial experience.

“We would like to take this opportunity to thank the Bolivian authorities and private sector representatives for their cooperation and willingness to participate in a frank dialogue.”

¹ Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.