Bolivia and the World Economic Crisis

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