Press Release No. 04/205

Press Release: IMF Completes Fourth Review Under Bolivia's Stand-By Arrangement

September 27, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Bolivia's performance under a 21-month, SDR128.64 million (about US$189 million) Stand-By Arrangement that was originally approved on April 2, 2003 (see Press Release No. 03/46) and later augmented and extented (see Press Release No. 04/113). This decision enables the release of SDR 26.8 million (about US$39 million) to Bolivia, which would bring total disbursements under the arrangement to SDR 101.84 million (about US$149 million). In completing the review, the Executive Board approved Bolivia's request for waivers for the nonobservance of performance criteria.

Following the Executive Board discussion on Bolivia, Agustín Carstens, Deputy Managing Director and Acting Chair, said:

"Bolivia's economic performance is improving, and implementation of the authorities' economic program is broadly on track. Economic growth has picked up, the current account is in surplus, and inflation remains in single digits. The financial situation has stabilized in the last two months, following some deposit losses in the period leading to the introduction of the financial transactions tax. The affirmative outcome in the gas referendum should give the Bolivian authorities some breathing space to develop their hydrocarbons strategy. A national consensus on economic policies will be important to take the economic agenda forward.

"The authorities remain committed to achieving their fiscal target for 2004, and intend to continue to make progress in 2005 toward attaining fiscal sustainability while increasing infrastructure and social spending. In this regard, appropriate tax reform, including a phase-out of the financial transactions tax, and measures to improve tax administration, curtail current spending, and improve public expenditure management will be important. As Bolivia's debt burden is sizeable, attainment of debt sustainability will depend to a large extent on financing the budget deficit with grants and concessional financing and avoiding non-concessional borrowing.

"The authorities are taking measures to protect and strengthen the financial system. These include strengthening financial supervision and liquidity monitoring, while improving prudential norms and moving towards a risk-based supervisory framework. The authorities also intend to continue their proactive interest rate policy in response to changes in liquidity conditions; and to increase placements at longer maturities given the improved domestic bond market.

"An appropriate hydrocarbons' strategy will be necessary to attain medium-term sustainability. The authorities recently submitted a hydrocarbons bill to Congress and will continue to work toward ensuring that conditions essential for development of the sector and medium-term sustainability are developed. Furthermore, the authorities are committed to ensuring the efficient and transparent use of hydrocarbons-related revenues to benefit the Bolivian people.

"The authorities expect to complete a Poverty Reduction Strategy Paper by the end of this year, which will form the basis for the development of a medium-term economic strategy to raise Bolivian living standards. 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 facilitate the development of such a strategy. The IMF stands ready to continue to assist Bolivia after the current arrangement ends in December," Mr. Carstens said.