In December 2008, Evo Morales, president of Bolivia, banished the importation of cars that are more than 5 years old. This measure was quite a surprise for everybody, including the car dealers that were importing old Japanese model cars.

The official reasons for this measure is to reduce the amount of cars, the levels of pollution, and obviously the oil demand. Nevertheless, the underlying cost of this measure is the loss of hundreds of jobs between the borders of Bolivia and Chile, as well as extraordinary loses for car dealers and importers.

What is the most important reason for this measure ?

From my point of view, the most important and worrying reason is the oil demand. The government is somehow acknowledging with this measure that the national oil offer would not be enough for internal consumption in the following years. This is quite evident given the deficient management of the national oil company (YPFB) which in 2008 produced less oil than preceding years.

Nevertheless, why choosing as limit 5 years old instead of 7 or 10 ?

I didn’t find any explanation about it in the press, but my gut instinct drives me to the conclusion that this is highly related to the oil demand and the Bolivian acquisition rate of cars.

Cars that are not older than 5 years old are expensive for Bolivian pockets which implies a weak demand. The consequence is a weak offer that decreases sharply the Bolivian car growth rate. The direct output is that oil production would not be affected too much in the following years due to this transition period.

I would say that this measure shows that Bolivia is currently having serious issues to adjust its oil production/importation to its own demand. Some indirect facts that drives me to this conclusion is that in 2008, there were far to many problems with the internal oil distribution in several regions in key periods of the year (e.g. start of the plantation season).

Will this measure help Bolivia during 2009 crisis ? Perhaps a little…. but … would this be enough ?

This article is meant to be just a common sense analysis about the new Consumer Price Index (CPI) 2007 that has been applied in Bolivia since April 2008.

This subject would not be that important if there weren’t critical changes in the way that this index is calculated (source: Cainco Analysis ). Here are just some concerns that depicts the inflation in this country:

1. The CPI 2007 removes some products that had an important incremental price years before.
2. The index categories have changed as well as the cities were the samples are taken.
3. The new CPI uses a geometric mean while the old one used an arithmetic mean.

There are other considerations that need to be analyzed better like the choice of the basis year 2007 and lack of transparency around this new index. However, I would like to focus on the choice of parameters, the mathematical means, and the potential consequences of this change.

The CPI 2007 products

After browsing for some hours on the INE’s official website, I have not found any information concerning the new CPI 2007 parameters or methodologies. After reading the press, it seems that this information has not been made public in an official way. This lack of transparency makes us wonder if the inflation results based on the CPI 2007 reflects Bolivia’s real inflation (what is the official choice of parameters ?)

Accordingly to the press, there are 60 products removed from the CPI which seemed to have experience an important volatility in the past years. The most important would be: scholar and pre-scholar inscription fees, razor blades, mail stamps, sewing thread, gelatin, shoes cream, oregano, etc.

There are 139 new products and services such as computers, kindergartens, washing machines, microwaves, vehicles, gym services, superior education, natural gas, aerial transportation, vehicle insurance, etc.

The choice of these last products have two issues. First, the prices vary very little in a short term scope since these are products of a long-term duration (e.g. microwaves and washing machines). The same can be applied for services such as kindergartens or superior education where the fees are paid by semester or year. Can these products show the inflation per month of a country when their prices are stable for several months?

The second consideration is that many of these products are imported in dollars. Since the Bolivian peso is currently quite strong in comparison to the dollar, these products depends on the currency value. Because they are not produced in Bolivia and depends on the dollar value, can they be considered as part of a Bolivian index of inflation?

Finally, most of these services/products (e.g. aerial transportation or vehicle insurance) are consumed by a very tiny part of the population. I would be astonished if more than 10% of Bolivians take an airplane once per month. Can these services/products consumed by a small population be part of a National index ?

The CPI 2007 New Categories and new cities

The categories used in the CPI 1991 have changed in CPI 2007 in order to be comparable with the EU and Andean Community (CAN) countries. This can be potentially useful for benchmarking with similar countries.

The samples used to be taken from the 4 most important cities (La Paz, El Alto, Cochabamba y Santa Cruz). The new CPI takes samples from all the major cities in each department (9 in total). The issue here is that together La Paz & El Alto had a 48 % weight and with the new CPI they will only have roughly 29 %. Besides, the population of these cities together reach 2 million people which represents 25% of Bolivian population. The consequence is that an important demographic region will represent less than other cities in the new index.

Another interesting point is that the group Food & Beverages represents 40% of the CPI 2007 index while it was 50% of the CPI 1991. This particular group is considered to be very volatile in the Bolivian economy, having a smaller percentage in the new index implies a smaller incidence of volatility in the overall inflation result. For a country with such a small GDP per capita, food & beverage is more relevant than services or other non-basic products. As a comparison the following table shows the percentage of the Food&Beverage group with the corresponding nominal GDP

• 48% Peru with 4.414 GDP per capita
• 40% Bolivia with 1.665 GDP per capita
• 31 % Chile with 10.125 GDP per capita
• 26% Ecuador with 3.562 GDP per capita

The Geometric vs Arithmetic mean

Mathematically, the Geometric mean cannot be higher than the arithmetic mean. The CPI 1991 was calculated with an arithmetic mean while the CPI 2007 uses the geometric mean. In consequence, the inflation calculated by a geometric mean will be smaller or at most equal than the one calculated by the arithmetic mean.

I cannot say which way is better way to calculate the CPI, but in any case the new index should be benchmarked with the old index for at least 6 months or a year to understand better the difference between both measures and to prepare the transition.

Last Comments

The new changes of the CPI 2007, might underestimate the real value of the inflation since many products chosen as parameters have long-term scope and are not necessarily accessible for most of the Bolivians. At the same time, the Food & Beverage group which is the most important category for the Bolivian economy has been reduced its incidence by 10 %.

If we add the fact that a geometrical mean is used, then it is not surprising at all that the inflation results are smaller with the CPI 2007 than the one that could be obtained with the CPI 1991. This is quite important for all the Bolivians since, as Doria Medina said, the inflation sets the salary increases. If the official inflation is smaller than the real one, all the Bolivians would be paying the gap as an indirect “tax”. For instance, if the real inflation is 10%, but the official one is 8 %, then the salaries are increased by 8 % which means that the 2 % is covered by the population that obviously will get less for their money.

As Bolivian, I can only hope that the economic agenda will be prioritized over the political agenda the next year. Who really cares about a new Constitution if our salary pays less bills than before ?

This week, I was having a very interesting conversation with my brother about Bolivia, companies and the world economic crisis. We were specially talking about international companies that are particularly touched by this bad season. My brother taught me how these things happen with a very nice analogy that I would like to share.

However, my disclaimer, the analogy is related to religion and my apologies for this but we didn’t find another better example to understand the process ….

Here it goes

The restructuring in a company happens like, for example, in the Christian times. Christ had in earth many apostles and disciples, like the Director and its Senior Managers. Obviously, between the disciples you have some leaders who are closely related to the apostles (the relation between managers and Sr. managers).

So, when Christ was in the Via Crucis or when He died (very bad times), the apostles had the duty to spread the news and Christ message to their disciples (communicating bad news and restructuring the company).

After such bad news, urgent and important meetings are held by the apostles between themselves, and then with the other disciples.  Many disciples are asked to spread the message to other parts of the world (relocalization), other disciples are asked to stay at home for their own safety (unemployment). Due to the magnitude of the news, some pro-active disciples choose to go in Missions to spread the world of the company and perhaps to created their own congreagation (new oportunities inside the same company).

However, because the news are quite bad, some people don’t trust anymore the apostles and they choose to come back the Roman traditions (switch companies). After some time, these or other disciples might create their own religion and traditions based on what they believed (new companies and start-ups).

In summary, the analogy is that in bad times, companies, directors, senior managers and managers might behave like the apostles in that time. It seems that human beings have not changed that much during bad times….

Hope you liked the analogy

Marcelo

Today, 28th October 2008, there are so many changes in the world that who can really predict the Future. Once again nature, the market’s nature, has shown us that human beings are just so fragile and weak against the complexity of markets and the imprevisibility of our world.

I would like to write just some ideas about Bolivia, my home country that I love so much. These are just ideas and limited visions of the challenges that this beautiful country will encounter in 2009. Let’s talk with economic facts and not with politic speeches.

Overview of Bolivia

• More or less 9 million people
• 1′098′581 Km2
• Exports are mainly based in gas and minerals (e.g. zinc and stain)
• the poorest country in Latin America that has suffered several politic confrontations since 2000

The world crisis leaded by USA will obviously affect Bolivia because our economy is just so small and so dependent on the oil and material prices that we can do very little to reverse this situation. Here are some facts:

1. Bolivia will no longer profit from the ATPDEA with the US because the Bolivian government has not shown a strong commitment to decrease the cocaine production (accordingly to the American government). The consequence is that more than 20 thousand people, specially SME, will be severely affected with a high probability of massive unemployment
2. The oil price, which is correlated with the gas price, has decreased in an extraordinary way. Today, the barril of petrol is around 70 dollars when a few months ago was around 150. This means that the revenues perceived by the Bolivian government will decrease of 50%.
3. The price of materials, in special the zinc price, was also heavily decreased these last two months. The Andinean region, like Oruro and Potosi, are likely to experience an important rate of unemployment linked the crash of several mining companies (and the credits that these might have)
4. The political environment is not stable since there is a lot of political confrontation between regions and the government. The consequence is a lack of trust from internal and external investors. Who wants to invest in a country where the future is so uncertain?
5. The inflation is expected to be 17% this year. Projections for next year does not seem to be better.
6. A lack of fuel distribution has been experienced in the most important economic region, i.e. Santa Cruz. Without an insufficient offer of fuel, the agro-industrial sector cannot operate normally and which is even more critical is that potential growth is constrained.

These economic facts might have some very important consequences as the following

1. Massive unemployment in the mining industry as well as the enterprises linked to the ATPDEA
2. Mining unemployment in Bolivia implies high rates of internal/external migration. Internal regions (mainly cities) and border countries are likely to be the preferred destinations.
3. Miners have a poor education. In the worst case scenario some people might start illegal activities for surviving (black markets, narcotrafic, etc.)
4. Unemployment related to bankrupted companies, in the scope of the ATPDEA, might continue to export their products through other channels like Peru with smaller revenues. A small percentage of small companies will migrate to the countries that have the ATPDEA (e.g. Ecuador, Peru) which implies assuming a high risk and strong investment. Middle enterprises might not have this flexibility due to their equipment.
5. If Bolivia experiences an important lack of liquidity to generate jobs, it would be quite taugh for the current government to capture external/internal investment or credits. Few international organizations would give credit to country that has a bad reputation for paying interests and respecting international agreements.
6. “Friend” countries like Venezuela and Brazil will also have a taugher 2009 which implies that economic help (credit, donations or comercial agreements) might not arrive in time. In this scope, even the UNASUR ( Union of South American Nations) countries will be in a kind-of recession period and will not have the time nor the economic power to help Bolivia.
7. The Bolivian Peso will lose its value in comparison to the dollar since it is expected to increase after the American elections. A sign of this projection is that Bolivian Banks are not accepting more money in UFVs (Unidad de Fomenta a la Vivienda). The UFV is a Bolivian economic measure where the interest rate is linked to the inflation such that the amount invested does not lose its purchasing power.

With this little overview I can just say that Bolivia should take seriously the 2009 economic panorama more than the new Constitution. Because at the end of the day, if past and current governments did not fully respect the Constitution, what make us think that governments will respect it in the future ?

It would be better for Bolivians, myself included, to work harder & better rather than do politics….

Marcelo

Hi there !

This weekend was just OK. I was expecting much more about Los Angeles, but actually, it was not the case. Now, I can say that I have been there, on the Hollywood boulevard, at Beverly Hills and Santa Monica.

However, there is not too much to see there because it is just a huge city with huge distances. Going from one neighborhood to another one takes forever, and there are a lot of aggressive drivers (more than France…) .

There is one only thing that is just unbelievable and unforgettable. The beaches !!!! They are gorgeous and the “crowd” , if you know what I mean, helps you to stress out all the anger that you have after driving in the highways

The weather is outstanding and the sand is just awesome. That really worths a stop and, for sure, a nap. My body hurts a little bit because I get a little sunburn, but it is OK, isn’t it ?

See you around,

Marcelo

Hi Family and Friends,

The only thing that I can really say is that this weekend was more than wonderful. It was really really sunny and everybody was having fun !

As usual, weekend in San Francisco for us (Jose, Dinou and me) starts on Wednesday and sometimes on Tuesday. Well, you know, this city has so many things to do that  our week is something like this:

Wednesday. 111 Minna place where we have some drinks with house music (very beautiful girls there ! )

Thursday. Most of the times we try to go to new places but there is one that we really like that is called The Cat Club. They have 80’s music and crowd there is so goooood!

Friday is always great. My first plan is dancing salsa at the Cigar bar & grill just near my place. This is a really good spot and there is even a salsa band !!!

Saturday is most of the times “random select” after dinner somewhere.

And Sunday, either we go to the countryside to take pictures and knowing some nice places or we hang out at San Francisco.

Well, this weekend wasn’t very different. We went to the pride parade (lesbians and gays parade)  with our female friends to be kind of “protected”. There were a lot of tourist like us and it was pretty funny actually. Then we went to little Italy to eat some pizzas. It was really a nice weekend

See you around the Net

Marcelo

Dear friends and family,

I do apologize for not writing or putting any photo at all in this blog, but there were so many things in my life these last weeks that I really did not have the time.

Many personal problems have turned around my head these days. As many of you must know today, I am completely single again which is quite a big news. I do not want to say many things about it because this is not the right place to do it. I just want to express myself by saying that is very difficult to maintain a relationship when one’s significant other is in the opposite side of the world.

I learned so many things in this relationship that I am more than satisfied. I have felt extraordinary feelings and I kept in my mind unforgettable memories. Without any doubt, this relationship has offered my extremely happy moments that I will never forget.

It is true that today this is over for good. It is a pity but “that’s life” and one has to accept the reality as it is. I am completely sure that I will find the right person at the right time. It is just a matter of time.

I like my life and I love to be here today. I am so happy to be here that I do not regret any single moment my decision of traveling.

I cannot say that I am 100% recovered from this fall, but these three months I have learned so much about myself that now I am ready to live my life as I feel it !!!

This is my life and nobody decides for me.

Cheers,

Marcelo

PS: I would appreciate not to have any comment about this subject at all in this blog. I just wanted to share with you this important moment of my life with you.

Hola,

Para empezar estoy cansado puesto que ahora voy al gimnacio todos los dias, llueve, truene o granice…..bueno…. aqui no llueve ni nada por el estilo, pero el caso es que voy todos los dias y no me quejo, repito, despues del trabajo.

Ya he bajado casi 30 gramos y pienso bajar un poco mas, espero llegar a los 1000 gramos hasta fin de mes. Ya levanto 500 gramos en cada brazo y hago 20 abdominales en 5 minutos. Tambien corro 20 minutos sin parar y hago 500 metros en la piscina (250 sin parar).

Me esta yendo mas o menos bien el trabajo, ahora tengo unos problemas matematicos complicados que mi pobre cerebro no llega a resolver. Espero que las ideas me vengan un poquito mas rapido esta semana. En fin, me gusta lo que hago, pero me revienta cuando no funciona. En resumen, lo de siempre.

Mis colegas de trabajo me han invitado a ir a jugar futbol a medio dia puesto que tienen la impresion que soy un Ronaldinho en boliviano, lo cual evidentemente es verdad. Lo llevo en la sangre, en lo mas profundo de mi ser, pero no en los pies, lo cual creo que para el futbol no es bueno, verdad?

En todo caso, creo que voy a ir a jugar con ellos, para conocer mejor a mis jefes y colegas, pero me voy a ir con todo el equipo de futbol ….. de futbol americano: canilleras, rodilleras, zapatos de fierro, doble media, tobilleras, protector bucal, coderas, ñunchaco, guantes de box, casco de guerra, chaleco antibalas y mi pelota de futbol. Tan solo para estar seguro de que no me hago nada.

La vida aqui en San Francisco esta bien no mas, pero a veces es demasiado americana para mi gusto. La gente va a los bares para ver los matchs de la NBA, NFL y la de beisbol (wakala !), ademas, que hay gente gorda. Algunos(as) son tan gordos que me siento anémico.

Como ya les dije, vivo al lado de mi barrio, Chinatown. Todo el mundo me mira medio raro, y ahora que ya se comer bien no mas con palitos, ya soy el espia perfecto. Un amigo chino-canadiense me dijo que podria ser un white-wash (lavado con lavandina) o un banana  (white inside, yellow outside).

En fin, un beso grande para todos ustedes y espero verlos prontito.

Marcelo

Hola !!!

Now I am in San Francisco !!! Yupi !!! This is a beautiful city where everybody can find something interesting to do, eat or see. It is just wonderful !!! The Bay is just next to the city and the landscape is just impressive.

My place, I must say, has not a very nice looking entrance. Actually, it really s..ks because it looks like a cheap garage which has not been cleaned for ages. However, my room is just perfect and the location is even better !

I have Chinatown just behind my building and Little Italy in the front. So either I eat Italian food with a good Expresso or I go to eat some strange-made Chinese food. There are so many restaurants, ice cream stores, bars and shops near my place that Jose and Dinou come almost everyday here to hang around (not necessary with me, though).

However, I feel that my significant other is missing because there are so many parks nearby, so many places near the water (Bay or the Pacific ocean) to hang around that I cannot wait to do it with her. It is really a very nice place to live or hang around. Almost everything is nearby…. except my job which is 45 minutes away from here. However, nothing is perfect, right?

I feel very lucky to be in this place today, because I learn a lot about being on my own. The parks and the landscapes are so awesome that I cannot pass near them without stare them for a while.

This weekend, I went to meditate a little bit about my life near Fisherman’s Wharf. I spent a couple of hours thinking about the future and many other things in front of the magnificent ocean. It is just amazing !

Have a nice nice week !

Marcelo

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Hi there !!!

Whaz up dude ? Was it going brooo?

These phrases are like “Hello” in standard America. The only people that say How are you or how are you doing are…. foreigners and strange people (normally with suits and/or well-dressed), hehehe

However, I do not want to talk about it right now. I would like to show you my ex-room at Fremont which was small but very comfortable. I must say that I really like it because the landlord was “super-sympa”. She drive me to work sometimes when I was too tired (or not sufficiently motivated) to ride my bike to work. I hope you like them

Have a good one ! (aka: Have a nice day…)

Marcelo

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