Friday, July 21, 2006

Bolivia: IMF Sees Inflation Easing

WASHINGTON, July 19 (Reuters) - Bolivia's inflation should ease to 4.0 percent this year from 4.9 percent in 2005 while the economy grows 4.1 percent, the same magnitude as last year, the International Monetary Fund said on Wednesday.

"Economic activity has been led by high export values of hydrocarbon and mining products, which have contributed to a strong external current account surplus," the IMF said in its annual Article IV review of the economy.

"The economic outlook for the remainder of 2006 remains positive, helped in large part by continued highly favorable external conditions, notably high energy prices. Real GDP growth is expected at just above 4 percent, with inflation in the low single digits," it added.

Bolivia, which is South America's poorest country, was freed of its IMF obligations under last year's agreement to cancel the debts of the world's 19 poorest countries to the fund. Demand for its large reserves of natural gas and minerals has helped Bolivia build up large international reserves.

The one area Evo can claim credit for is in increased prices for Argentinian gas, and political stability. This control of inflation and modest growth, is the product of hard-won reforms by the four previous governments, which finally took care of runaway budgets, excessive centralism, and developed an institutional and regulatory framework for the Central Bank to act independently and prudently.

Don't Throw The Baby Out With The Bathwater
Departmental governments have amassed sizable deposits at the central bank, helping sterilize the monetary impact of the rapid international reserve accumulation, the IMF said.

Bolivia's banking system is highly liquid and capital adequacy ratios are above mandatory levels, it added.

"Despite periods of political uncertainty, the banking system has remained stable and dollarization has declined somewhat. Reflecting debt relief under the Multilateral Debt Relief Initiative, the burden of the public debt has been substantially reduced," the IMF said.

A fiscal deficit would re-emerge in 2007 without another influx of exceptional hydrocarbon revenues and greater state-oil firm YPFB investments and payments for the acquistion of energy companies nationalized on May 1, it added.

Evo, needs to figure out that he can alieviate poverty by keeping the responsible policies of the previous governments in terms of fiscal and monetary policies. He needs to cut deals that maintains hydrocarbon production and increases investments, and building surpluses for resposible and directed social spending.

Tip Of The Hat to
The Latin Americanist