How does the future look for Bolivia? I am pessimistic.

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Here are my reasons:

  • While Bolivia has been growing fast in recent years, and is predicted to be the fastest growing economy in South America next year, most of its success has been generated by increases in commodities’ export revenues (mainly natural gas and minerals). As the prices of these commodities decrease in the near future, however, export revenues will also decrease and Bolivia will not be able to sustain the fast growing pace. And why would the prices of these commodities decrease? There are strong signals in that direction. China’s economy is slowing down, Brazil – Bolivia’s major trading partner – is expected to suffer a drastic reduction of its growth rates, Argentina – an important buyer of Bolivia’s natural gas – is on the bring of economic collapse, etc.
  • The nationalization of hydrocarbon companies has left the country without the required investment capacity to explore for more deposits in Bolivia’s territory.
  • While Bolivia has kept in check its fiscal discipline, the increase in income has not been used to improve the institutional environment required to attract more investment. In fact, the judicial system is now less efficient and more corrupt and politicized than ever. Impartial justice is simply non-existent under Evo Morales’ regime.
  • Property rights are continuously affected and investing in Bolivia continues to be a risky adventure. Here are just a few examples. The government controls the prices of beef, chicken, flour, sugar and other foodstuff. The government also controls the exports of corn and soya, the tuition charged by private schools and the interest rate in the financial system. Moreover, the government obliges all companies to pay 14 salaries (instead of the normal 13) each year the country’s growth rate reaches 4.5%.
  • Corruption has increased tremendously. In fact, corruption in Bolivia is no longer the “normal” rent-seeking practice that a few bureaucrats always engage in in any country. The corruption in Bolivia is now also political and violent. Bureaucrats are not only after money but also after establishing a complete political control of the country a la Chavez or Correa.
  • Drug trafficking has exploded under Evo Morales’ regime and its behind the rampant increase in criminality.

While some analysts argue that the political stability achieved under Evo Morales is a positive factor, I will argue that such stability is precarious and based mainly on the economic boom described above. The minute the country stops experiencing the accelerated growth of recent years, the obvious presence of political abuse, the lack of institutional development and the increasing corruption and criminality will likely erode Evo Morale’s support quickly. Until that happens, the country would have wasted its most favorable economic circumstances in history.

Want a different opinion? Here is somebody that is optimistic.

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