Bolivia Country Brief

Development Progress|   Challenges Ahead |   World Bank Assistance |   Project Achievements

Development Progress

First indigenous leader in powerAfter two decades of wide-ranging reforms that allowed Bolivia to halt a catastrophic hyperinflation process, but did little to reduce poverty and inequality, the current Administration, leaded by President Evo Morales – the first indigenous in reaching the presidency – is proposing an alternative agenda, with ample popular support.
President Morales’ agenda seeks to redistribute power, increase inclusion, and strengthen State control in strategic sectors of the economy. This proposal triggered parallel regional agendas, as a reaction. In a context of international economic bonanza, reaching consensus in the short term among these agenda is critical forBolivia to reach sustainable growth and poverty reduction.

Economic context With a population of 9.1 million, Bolivia is one of the poorest countries in Latin America. In 2006, the annual income per capita reached to 1,153 dollars and almost 40% of the population lived in extreme poverty. In addition, Bolivia is one of the most unequal countries in the continent with a Gini coefficient of about 0.6 and 10% of the population obtaining over 40% of the total income, which illustrates the fact that the majority of the population has not had access to enough opportunities to improve their quality of life.
In 2006, the Gross Domestic Product (GDP) grew up in 4.6%, associated to a favorable external environment, reflected in high price levels for raw materials, particularly gas and minerals. During the present year, growth has slowed down slightly due to current reasons (like the meteorological phenomenon El Niño) and a low level of private investment. By August 2007,  the inflation has speeded up surpassing the 10% annualized,  compared to about 5% in 2006. Thanks to the significant foreign currency inflows from gas exports, the Boliviano has appreciated in about 3% with respect to the American dollar exchange rate, the persistent fiscal deficit has turned into a superavit of about 4.5% of GDP in 2006 and the current account reached a superavit close to 12% of GDP. The modest economic growth and the fall of private investment are nonetheless worrying elements in this context, considering the urgent need to reduce poverty.

Source: Central Bank of Bolivia, OMS-Global database on child health, Bank estimates based on official surveys and World Development Indicators.

Bolivia recovered from the severe 1980s’ economic crisis Following the mid 1980s catastrophic economic crisis and its stabilization process, the country made considerable progress during the 1990s. A profound municipal decentralization took place increasing people participation. All state companies were opened to private investment and a fully-funded individual capitalization pension system was implemented. An education reform was initiated and health public services were improved. This process contributed to consolidate macroeconomic stability and to recover a consistent although modest economic growth.

Non-monetary poverty indicators improved, but poverty and inequality remained daunting In the 1990s, most non monetary poverty indicators improved as public expenditure was reallocated to social services and infrastructure. In this context, primary education enrollment and completion increased, health supply was improved to tackle child and maternal mortality, and the road network was extended.
However, growth effects on poverty were modest. Moreover, at the end of the 1990s, attained modest achievements were reverted by the global slowdown – in 2000 two third of Bolivians were poor and Gini coefficient was above 0.6. In this context, reforms implemented in the 1990s were questioned by a growing share of the population as results were below expectations, triggering social and political instability.

The election of President Morales mitigated the political instability that ruled the first half of this decade Between 2000 and 2005, Bolivia went through significant political instability, being ruled by five presidents. As a result, the influence of traditional parties diminished while new actors emerged – particularly social and indigenous movements – while regional differences between highlands and the wealthier lowlands emerged. In this context, at the beginning of 2006, Mr. Evo Morales became the first indigenous president thanks to a broad population support, proposing an alternative agenda to the 1990s reforms.

Morales’ administration is committed to fight poverty and exclusion The new administration is proposing to redistribute political power through a constitutional reform, benefiting traditionally excluded groups, in particular indigenous. In parallel, it is willing to increase the State participation in key strategic sectors to support labor intensive sectors and finance aggressive social programs, taking advantage of good external conditions.

The new administration is benefiting of exceptional external conditions Large current account surpluses were reached since 2005 as commodity export and remittances impressively grew. Commodity prices favored tax revenues reverting customary fiscal deficits into surpluses. Moreover, external public debt has been reduced from 52 percent of GDP in 2005 to 16 percent in 2007 due to the MDRI, as the IMF, IADB and the Bank forgave $2.8 billion debt.

Conflicts are reemerging and growth is not recovering The Government has been trying to consolidate the central government’s influence on land administration, natural resources and expenditure allocation. However, lowland regions, where most natural gas reserves and agribusiness are concentrated, have been deepening their long-desired autonomy agenda, with ample local support. In addition, the economy is not properly taking advantage of good external conditions. Private investment is constrained by the uncertainty related with political divergences and the nationalization of former public enterprises.

It is expected that Bolivians will be able to build a common agenda to lay the foundations of long-lasting growth and poverty reduction Bolivian would create a common project that will strengthen the democratic institutions and people participation in order to boost sustainable growth and fight poverty and exclusion. The donor community should be ready to support Bolivian to face these endeavors.

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Challenges Ahead

Poverty and inequality remain daunting While in recent decades, most non-monetary poverty indicators have improved significantly, monetary poverty and inequality reduction have been modest. In 2005, more than one third of Bolivians was living under extreme poverty lines and about 60 percent were poor. Reducing these poverty levels is an enormous endeavor for Bolivia that will require the support of the international community, at least in the areas detailed below.

Facing international food inflation and climate disasters Bolivia has been severely affected by international food inflation, exacerbated by successive climate disasters that constrained agriculture output. In this context, Bolivia will need policies to improve rural productivity, reduce the transport and logistics costs, and rapidly and efficiently face emergencies. Moreover, improved social protection networks will be required in order to support the most vulnerable groups.

Managing natural resources and consolidating macro-economic stability Bolivia is experiencing large current account surpluses due to mining and gas exports that are being favored by exceptionally good external conditions. Moreover, high commodity prices contributed to increase tax revenues and reach important fiscal surpluses. These outcomes represent an important opportunity for Bolivia’s development but they also bring new challenges. Bolivia will need to manage natural resources in order to effectively boost growth, reduce poverty and face an eventual reversal of external conditions. In this context, Bolivia should control fiscal expenditure pressures that current decentralization process and other policies could trigger.

Improving the investment climate and laying the foundations for growth During the last half-century, Bolivia’s per-capita income has grown only modestly. Bolivia’s traditionally poor investment climate has restricted private development in most economic sectors and boosted informality. In this sense, Bolivia will need to reduce its red tape by providing predictable, rapid and transparent processes with special attention on small and medium enterprises. Moreover, new investments to improve infrastructure and logistic´ services will be needed.

Providing good quality public services, in an equitable way During the last decades, health and education services coverage have significantly increased while quality showed some advances. Nevertheless, further improvements are needed, particularly in rural areas. Moreover, public services supply should be more progressive. In this context, investments to improve overall education quality and enhance secondary education coverage will be important in the upcoming years. In health, the mayor challenge is to expand coverage and quality of public services in order to continue reducing child and maternal mortality rates in an affordable and sustainable way. Moreover, the reduction of malnutrition would need immediate attention because Bolivia has one of the highest malnutrition rates in the region.

Improving governance in a more decentralized framework Careful planning and good governance are needed to ensure that public resources are efficiently spent. Bolivia has made significant progress in the last years but the current decentralization process would require additional efforts to enhance governance ant the quality of public institutions, in particular at sub-national levels; in the future, they would have more responsibilities in the delivery of public services and Bolivia’s development.

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Current World Bank Approach in Bolivia

The Bank was able to rebuild its portfolio with a pragmatic approach, remaining close to the client and maintaining its technical standards

Despite the complexities of the current political transition, the Bank was able to invigorate its portfolio in the last two years. To do so,