VZCZCXRO4707
PP RUEHLMC
DE RUEHLP #0021/01 0041230
ZNR UUUUU ZZH
P 041230Z JAN 08
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 6113
INFO RUEHAC/AMEMBASSY ASUNCION 7481
RUEHBO/AMEMBASSY BOGOTA 4849
RUEHBR/AMEMBASSY BRASILIA 8763
RUEHBU/AMEMBASSY BUENOS AIRES 5985
RUEHCV/AMEMBASSY CARACAS 3194
RUEHGE/AMEMBASSY GEORGETOWN 0554
RUEHPE/AMEMBASSY LIMA 3409
RUEHMD/AMEMBASSY MADRID 3793
RUEHMN/AMEMBASSY MONTEVIDEO 5178
RUEHPO/AMEMBASSY PARAMARIBO 0239
RUEHQT/AMEMBASSY QUITO 5839
RUEHSG/AMEMBASSY SANTIAGO 0450
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHUB/USINT HAVANA 0856
RUEHLMC/MILLENNIUM CHALLENGE CORP
UNCLAS SECTION 01 OF 02 LA PAZ 000021
SIPDIS
SIPDIS
E.O. 12958: N/A
TAGS: ECON PGOV PREL EINV BL
SUBJECT: BOLIVIA'S MACRO-ECONOMIC SNAPSHOT
REF: A. LA PAZ 3259
B. LA PAZ 3150
C. LA PAZ 3098
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Summary
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1. (SBU) Entering 2008, the Bolivian economy seems likely
to suffer the consequences of recent political mismanagement.
In 2007, overall GDP growth slowed to between 3.8% and 4.2%
(well below the 5.6% average for the region) and almost all
sectors of the economy are showing the effects of several
years of minimal investments. High levels of liquidity in
the economy benefited some industries (in particular
construction), but also helped push inflation up nearly
three-fold in 2007 to around 12%. Bolivians are clearly
worried about the economy; regardless, politics continues to
dominate the thinking of the nation's leaders. End Summary.
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The Macro-Economy
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2. (U) Depending on whose figures are to be believed,
Bolivia's growth rate fell to about 4% in 2007, down from
4.6% in 2006. (Note: The Economic Commission for Latin
America and the Caribbean (CEPAL) estimates the GDP rate to
be around 3.8%, while the Bolivian government puts the figure
at 4.2%. Taking either figure, Bolivian GDP growth was well
below the regional average of 5.6%, ahead of only Mexico,
Haiti, Nicaragua, and Ecuador. End note.)
3. (SBU) Economic growth is particularly disappointing
considering the high prices that Bolivia's primary exports
enjoyed in international markets. These should be boom times
for the country; however, hostile policies toward business,
unclear legal protection, and social unrest have all
contributed to a negative investment rate of $120 million
over 2007, the worst figure in the last 20 years. This lack
of investment is starting to show in production levels which
have fallen across the hydrocarbon, mining, and agricultural
sectors (growth rates continued to be positive only because
of rising prices).
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Inflation
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4. (U) The most pressing immediate issue for the Bolivian
people is inflation. The government reported an official rate
of 11.73% for the year, but experts are disputing the
figures. Indeed, for Bolivians whose lunch costs have risen
by 47% (Ref. A), the official numbers do not ring true.
Excess liquidity in the economy was the primary culprit in
2007. Commodity prices and improved terms of trade,
remittances (which now represent nearly 8% of GDP and
increased some 25% in 2007), narco-trafficking, and debt
forgiveness all contributed to increased inflationary
pressure. Surprising, considering the government's populist
stance, increases in discretionary spending over 2007 were
somewhat controlled (distributing around $100 million in
Venezuelan checks helped), but new entitlement programs have
recently institutionalized additional commitments and are
likely to push inflation even higher. For example, the new
pension program increases spending in the area by over 12% in
2008. Even more ominous, government salaries are set to be
renegotiated over the next few months. In the past, these
negotiations have been a catalyst for runaway inflation.
Salaries currently represent 48% of the national budget.
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Some Positives
LA PAZ 00000021 002 OF 002
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5. (U) Bolivia will register a budget surplus of around 4%
in 2007, its highest ever. Moreover, areas of the economy
able to capitalize on the excess of liquidity did very well
in 2007. Leading the list was construction, which grew by
12.5% through September. It was followed by financial
services (5.6%), transport (5.4%), manufacturing (5.2),
electricity, gas, and water (5%), communications (4.8%), and
commerce (4.4%), all of which will have grown at rates higher
than that of the overall economy. Additionally, the trade
surplus will come in at around $1.3 billion for 2007, a new
high (although through October exports grew at only 10.7%,
while imports grew by 19.6%, which may indicate that large
trade surpluses may not last). According to the National
Institute of Statistics (INE), the four largest export
sectors in 2007 (through November) were hydrocarbons ($2
billion), manufacturing ($1.2 billion), mining ($929
million), and agriculture ($169 million).
6. (U) Growth was particularly strong within the
manufacturing sector where exports are set to rise by over
11% for the year. The United States remains Bolivia's
largest market (55% of the total); however, fear is building
that government actions may jeopardize ATPDEA trade benefits.
In 2006, exports under the threatened ATPDEA program
amounted to $166 million and investors in the sector fear
that they may be forced to move operations to neighboring
countries to hold onto their export markets. Indeed,
informal reports are already making the newspapers of
jewelry, textile, leather, and furniture manufacturers moving
the finishing stages of their products to Chile or Peru in
order to facilitate export to the United States.
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Comment
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7. (SBU) Looming over all areas of the private sector is
the threat of greater state intervention as promised in the
proposed new constitution. Water, electrical, and
telecommunication services are all threatened by a document
that asserts exclusive state control over productive or
commercial activities considered to be vital public services.
Moreover, extractive industries are also likely to need to
renegotiate their activities in light of a more
interventionist constitution. It is not surprising
therefore, that investment levels continue to be low leading
into the new year. Bolivia faces a high probability of
electrical shortages (Ref. B) and an almost certain inability
to meet its international gas contract obligations (Ref. C).
Moreover, the possibility of further social unrest further
clouds the economic horizon. Economics has taken a back seat
to politics in the Morales administration, and unfortunately
even difficult times ahead are unlikely to change this focus.
URS