Bolivia is a landlocked country, sitting high in the Andes Mountains. Although rich in mineral and energy resources, it is one of the poorest nations in Latin America with high levels of inequality.

Two thirds of its population is made up of indigenous people; mostly farmers, miners, traders and artisans, traditionally excluded from having access to political, economic or social power. These areas have been dominated by the wealthy, urban Bolivians of Spanish descent.

In 2006, Evo Morales became the first elected President of indigenous origin in Bolivia’s history, having run on a campaign promising the effective participation of the poor and other excluded groups and to redistribute the wealth from the country’s rich natural resources.

Soon after coming into power, Morales nationalized much of the energy sector, giving foreign companies six months to sell at least 51% of their holding to the state and negotiate new contracts or leave the country.

New constitution

In June of the same year he won the majority in the election for a new assembly charged with rewriting the constitution in order to grant more rights to the indigenous population and extended autonomy to the states.

The new charter was finally approved in a referendum in January 2009, but the majority in four of the country’s richest regions – Santa Cruz, Tarija, Beni and Pando - opposed it.

These four eastern regions, or departments, passed autonomy statutes and demanded the division of tax proceeds from the energy industry. They reject the president’s economic policies and have been a source of fierce confrontation with the government.

However, Evo Morales’ measures have remained popular among the poorer, indigenous majority who live primarily in the western highlands.

Bolivia is one of the poorest countries in Latin America and has one of its highest levels of inequality. The reduction in poverty rates experienced in the 1990’s, when Bolivia had modest but consistent growth rates, was reversed by external and internal shocks at the end of the millennium.

The per capita Gross National Income was $1,260 in 2007, and the United Nations Development Program (UNDP) ranked Bolivia 117th (out of 177 countries) on its Human Development Index.

These results are strongly associated with the country’s meagre long-term economic performance. In addition, uneven distribution and poor quality of social services - particularly health and education - have disproportionately affected indigenous and rural populations.

Export boom

Over the last few years, and until the end of 2008, Bolivia enjoyed an export boom – driven primarily by hydrocarbons, but also including mining - that strengthened the external and fiscal position and boosted performance. Large external current account surpluses led to an impressive accumulation of international reserves. The main factors behind this outcome were strong export increases and the upsurge of remittances. Additionally, foreign public debt was reduced to 14% by the end of 2008.

The high oil prices, plus changes in the hydrocarbons taxation regime turned Bolivia’s customary fiscal deficits into surpluses. Increased government revenues allowed for higher public capital formation. Despite new or increased expenditures, the government maintained control over them.

Economic growth also improved in recent years, even though private investment remained low, partially inhibited by the uncertain political environment and the nationalization process in the hydrocarbon, telecommunication, mining, and water sectors.

Although the state-owned oil and gas company has signed new contracts with all foreign companies in the sector, no new significant investments have taken place, and this may affect future supply. In addition, no new significant expansions have been initiated in the mining sector or power generation sectors where electricity demand is reaching supply capacity.

Crisis

After a decade of price stability, inflation increased significantly from mid-2007. Rising global food prices, large flooding in agricultural areas that reduced domestic supplies and increased aggregate demand were the main factors.

The rise took place despite large open market operations to dampen demand, the exchange rate appreciation allowed by the Central Bank (which also helped to notably reduce financial dollarization), and ad hoc policies applied by the government that include temporary export prohibitions and reduction of import tariffs. This trend, however, was recently reversed.

The government is preparing a package aimed at reducing the potential impact of the global economic crisis. It includes an employment emergency plan, a mining stabilization fund (which compensates small zinc producers when international prices go below a certain threshold), a new US$100 million productive fund to support small producers, and a significant boost in public investment.

The government is seeking to increase capital expenditures as a counter-cyclical measure. However, if the effects of the crisis are worse than expected, the Government is willing to streamline its capital expenditures to avoid further deterioration of the fiscal balance. A $1 billion credit from Bolivia’s Central Bank to the state-owned oil and gas company was included in the 2009 draft budget to boost investment in the energy sector.

The government and the World Bank Group agree that a two-year Interim Strategy Note (ISN)continues to be the most appropriate instrument to sustain and deepen the Bank’s long-term support to Bolivia’s development priorities, as laid out in the National Development Plan (NDP). This ISN covers fiscal years 2010 to 2011 - defined by the government as a transition period for the country. The Bank expects to move to a longer term strategy after this period.

The World Bank support comes with extensive global and regional experience and access to a wide range of solution packages. These include:

Decentralized Infrastructure for Rural Transformation, which supports the Government’s effort to improve the delivery of electricity services in rural areas of the country. Despite setbacks by the changes in the institutional framework of the energy sector and the impact of El Niño and La Niña on disposable incomes in rural areas, the project has been able to provide solar home systems to 6,000 consumers in isolated and poor rural areas to date, making it the second largest renewable energy based electrification project by the Bank in Latin America.

The Bank has also backed the country’s effort to improve road capacity and accessibility in key segments of the national network via the Road Rehabilitation and Maintenance project. The plan includes some support to the secondary road network currently administrated by the Prefectures, and the strengthening of the government’s ability to manage road assets.

On the land reform front, the project Land for Agricultural Developmentaims at establishing a decentralized beneficiary-driven land distribution mechanism that will allow organized landless or poor farmers to acquire suitable agricultural loans and implement investment projects which would put them on a sustainable, higher-income livelihood path.

Some of the Bank’s most successful initiatives in Bolivia include the key health and education sectors, such as:

The Second Health Sector Reform Project (1999-2006) focused on extending coverage and increasing quality of health services and strengthening local capacity to respond to health needs.

Education Quality and Equity Improvement Project (1999-2006) aimed at improving primary education quality and coverage through curriculum transformation and community participation. The project was highly successful in promoting decentralized management and community participation and provided the basis of the education sector participatory planning process at municipal level.

El Niño Emergency Assistance(1998-2001) Project upgraded 28 rural roads, constructed 27 irrigation canals and built 21 retention structures for rivers in areas prone to flooding. In drought-affected areas, the project financed the construction of 319 small reservoirs, 179 surface wells and 50 small irrigation systems.

Public Sector Reform
The World Bank has financed several public sector projects, which include the creation of regulatory systems for the telecommunications, electricity, transport, oil and gas sectors and for the mining sector.

Protected Areas
Bolivia is one of the eight most bio-diverse countries in the world. The World Bank is helping to sustain the country’s National System of Protected Areas which aims to ensure the sustainable management of these areas.

Municipalities

CONTACTS:

Rafael Archondo
email: rarchondo@worldbank.org

Claudia Encinas
email: cencinas@worldbank.org

Calle Fdo. Guachalla, 342, edificio Víctor, piso 9.
Casilla de correo # 8692
Tel: (591-2) 215 3344
Fax: (591-2) 215 3305