October 03, 2012

Bolivia's Economic Development in Regional Context

MABB © ®

The Economic Commission for Latin America (ECLAC) has released its 2012 economic report on the region. In it, ECLAC argues that Latin America has been able to navigate the current and former crises since 2008 and that despite (or perhaps in spite of) it all, the region has been able to grow economically at decent rates.

So, I ask myself, how has Bolivia been developing in comparison to its neighbors?

First of all, the global context has not been very promising, that is, following the conventional wisdom that if the world is doing well economically, by extension, Latin America must do well too. The reverse applies in the same manner. But, reality contradicts this assumption.

For instance, at the global level, the major market in the world, the European Union, is not doing that well. You all know the Euro Zone is going through a serious debt crisis, which in the end is also affecting the growth of the US, China and India. However, as I just wrote above, the Latin America region is doing surprisingly well.

What does that say? Perhaps that Latin America is not that dependent on the European Union.

But the question that follows is how well (or not) is Latin America doing? And furthermore, the question that I am interested here is how well Bolivia is doing?

The figure above, taken from the cited report, shows that Bolivia has been growing at a decent 5% (y-o-y) in the period 2011-2012. That means, Bolivia is in 8th place from 20 and a good 1.8% from the average growth rate in the region. Only devastated Haiti (where there are lots of assistance funds being pumped in) and neoliberal new kid Peru have been growing at slightly higher rates.

The next graph attempts at answering the question what drives this growth?

According to the ECLAC, the average component driving this growth at the regional level is private consumption (grey), government consumption (orange) and investment (blue). Now, if we talk about the regional level, this graph makes lots of sense, but in the particular case of Bolivia, I would expect that the orange part of the bar would be significantly bigger. The reason being that, while it might be true that domestic private consumption has been improved through the diverse transfer schemes the government has put into place, the government is still the one actor spending the most money in the economy, i.e. investing or spending (however you want to call it).

For example, the table below shows the average variation in the region of construction activity.

From the table you can see that Bolivia has been putting resources in construction, although the table does not say whether this is government spending only or it also accounts for private construction. I will assume that it includes both. The rates of variation per quarter in 2011 and 2012 have been rather decent for the region. From the observations I made, the Bolivian government has been spending funds in the construction of infrastructure, such as roads, but also (for electoral purposes I think) on the construction of schools, parks, social centers, sport centers, etc.

The graph above compares the level of spending and revenues for the government in the period 2010 - 2012. As you can see, in 2010 and the first quarter of 2011, the government has been spending less than it received. However, in the last three quarters of 2011, the Morales government spent more than it received. One reason, I think is the various trips he has been doing around the country to open new schools, clinics, centers, etc., which his opponents have been pointing to his electoral campaign, which is certainly coming in 2014.

But, as long as the government has money to spend, it is going to spend it. That is how Morales and his supporters understand the role of the state. For now, if you see the graph above, Bolivia is in a good financial situation. One situation that the country is not used to and has very little experience. I would even say that this situation is an extraordinary situation. Bolivia is in surplus in relation to its public debt and with that in much better position than many other nations in the region.

The report is well worth the read. It has interesting statistics such as GDP, per capita GDP, fixed capital formation, trade numbers, remittances, reserves, exchange rates, participation rates, employment, etc., for the last decade (at least).

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