Bolivia i s today at a crossroads. Several years of growth were achieved in the early and mid 1990s resulting from structural reforms which encouraged an upswing in private investment and productivity gains. However, more recently a series of economic shocks have hit Bolivia. These shocks not only had a negative impact in and of themselves, but they also led to growing political and social instability and public disenchantment with the reform program, which has lost momentum in the past five years.This, in turn, reinforced an economic downturn, to the point where the gains in poverty reduction and employment creation of the 1990s have been lost.

Investment levels of 18-22 percent of GDP (compared to only 13.5 percent in recent years) and productivity increases are needed to achieve annual growth rates of 4 to 5 percent that would be sufficient for meaningful job creation and poverty reduction. This will require a significant increase in private investment, given that the public sector faces severe fiscal constraints. The key obstacle to achieving this goal i s political and social instability, a topic beyond the scope of this Country Economic Memorandum (CEM)’. Once a degree of political consensus and social stability i s achieved, Bolivia should retake the reform agenda to promote private investment and productivity gains, tackling micro-level obstacles such as contract security, legal enforcement, legal and regulatory burden, and trade policy, among others.

This report outlines policies that would allow Bolivia to achieve faster growth. Development and poverty have many dimensions, and growth i s necessary-but not sufficient-for development and poverty reduction. This report i s focused narrowly on growth. Drawing on long term trends, it diagnoses current problems in light of the country’s growth objectives that are being supported by the Banks overall program as articulated in the Country Assistance Strategy.