Press Release No. 04/113

Press Release: IMF Completes Third Review of Bolivia's Stand-By Arrangement, Approves US$16 Million Disbursement and Extension of Arrangement

June 10, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Bolivia's performance under a one-year, SDR 85.75 million (about US$126 million) Stand-By Arrangement that was approved on April 2, 2003 (see Press Release No. 03/46). This decision enables the release of SDR 10.72 million (about US$16 million) to Bolivia, which would bring total disbursements under the program to SDR 75.04 million (about US$110 million).

In completing the review, the Executive Board approved Bolivia's request for waivers for the nonobservance of performance criteria. In addition, the Executive Board approved to extend the Stand-By Arrangement until December 31, 2004, and augmented access to Fund resources by SDR 42.89 million (about US$63 million) to support the government's 2004 economic policies.

Following the Executive Board discussion on Bolivia, Anne Krueger, First Deputy Managing Director and Acting Chair, said:

"Bolivia's economy is gradually picking up, with moderate growth projected for this year and the current account in small surplus, while inflation remains subdued. The macroeconomic and financial situation has also stabilized in recent weeks, as the Bolivian authorities, with strong support from the international community, work to address social and political concerns while pursuing a challenging agenda of adjustment and reform.

"The authorities' program is based on a four-pronged strategy: (i) a budgetary framework to limit the 2004 fiscal deficit to available noninflationary financing; (ii) financing assurances from the international community that would minimize nonconcessional credits and avoid central bank financing of the government; (iii) measures to strengthen the financial sector; and (iv) a process towards implementing a viable hydrocarbons strategy.

"The authorities aim to reduce the fiscal deficit this year through measures already implemented or approved by Congress, and to implement reforms that will permit timely disbursements of concessional funds from bilateral donors and the multilateral institutions. The government is determined to monitor developments closely to assure that fiscal targets are met, so as to preserve hard-won financial stability. While some of the measures are temporary, they should provide breathing space for the government to prepare medium-term tax and expenditure reforms. At the same time, the government plans to continue to increase pro-poor spending and the national dialogue to build domestic consensus for its reform agenda.

"The authorities have made progress in implementing an action plan to address weak banks and reduce financial sector vulnerabilities, and have established funds for both financial and corporate restructuring. Moreover, they have sought to minimize domestic debt roll-over risk by allowing interest rates to be more responsive to market liquidity conditions and have recently begun to place domestic paper in the markets again.

"Looking further ahead, broadening and consolidating the national consensus for policies to support growth and poverty reduction, including through the efficient development of Bolivia's rich hydrocarbon resources, will enable the government to develop a medium-term program that could form the basis for a revised Poverty Reduction Strategy Paper later this year, and a possible Poverty Reduction Growth Facility," Ms. Krueger said.