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Bolivia Economy

Flag of Bolivia

Bolivia’s estimated 2008 gross domestic product (GDP) totaled $18.94 billion. Economic growth was estimated at about 5.6%, and inflation was estimated at about 11.5%.

In 1985, the Government of Bolivia implemented a far-reaching program of macroeconomic stabilization and structural reform aimed at maintaining price stability, creating conditions for sustained growth, and alleviating poverty. The most important change involved the “capitalization” (privatization) of numerous public sector enterprises. Parallel legislative reforms locked in place market-oriented policies that encouraged private investment. Foreign investors were accorded national treatment, and foreign ownership of companies was virtually unrestricted. Many of these reforms are currently under review. President Morales nationalized the hydrocarbon sector and expropriated some large international companies, including Entel (telecommunications) and Vinto (tin smelting). Increased state control of the economy continues to be a primary goal of the Morales administration. Foreign direct investment (FDI) inflows have dwindled, as has long-term investment across most industrial sectors.

The hydrocarbon sector provides the most prominent example of the current investment climate. Bolivia has the second-largest natural gas reserves in South America. The Bolivian state oil corporation, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), has contracts to supply Brazil with natural gas through existing pipelines until 2019. Moreover, in 2006, YPFB signed a “ramp-up” contract with Argentina that steadily increases export levels until 2010, when gas deliveries to Argentina should be more than four times current levels. However, lack of substantial investment between 2005 and 2008 meant that gas production stagnated; increasing by less than 10% over four years (2008 production level was estimated at 960 million cubic feet). Companies appeared to be investing only what was necessary to maintain current operations.

Bolivian exports were approximately $6.8 billion for 2008, up from $652 million in 1991. Imports were $4.9 billion in 2008. Bolivia enjoyed an estimated $1.9 billion trade surplus in 2008. Hydrocarbons made up 50% of the exports, minerals 22.2% and manufacturing 23.65%. Bolivian tariffs are low, however, manufacturers complain that the tax-rebate program which allows some companies to claim refunds of import taxes on capital equipment is inefficient, with many companies now owed millions of dollars by the Bolivian Government, which can take years to recover.

Bolivia’s trade with neighboring countries is growing, in part because of several regional preferential trade agreements. Bolivia is a member of the Andean Community (CAN) and enjoys nominally free trade with other member countries (Peru, Ecuador, and Colombia). Bolivia is also an associate member of Mercosur (Southern Cone Common Market). Bolivia currently is focused on developing markets through its membership in Bolivarian Alliance for the Americas (ALBA) whose members include Venezuela, Cuba, and Nicaragua.

Until recently, the Andean Trade Promotion and Drug Eradication Act (ATPDEA) allowed numerous Bolivian products to enter the United States duty-free, including alpaca and llama products and, subject to a quota, cotton textiles. Effective December 15, 2008, President George W. Bush suspended Bolivia’s participation in the program based on its failure to meet international counternarcotics obligations; meeting those obligations is a criteria in the U.S. statute which created the preference program. On June 30, 2009, President Barack Obama determined that Bolivia was not meeting the program’s eligibility criteria. This determination does not affect Bolivia’s eligibility for benefits under the Generalized System of Preferences (GSP), which covers most of Bolivia’s exports to the United States.

In 2008 the United States exported $511 million of merchandise to Bolivia and imported $393 million. Bolivia’s major exports to the United States are tin, gold, jewelry, and wood products, with textiles playing an increasingly important role. Its major imports from the United States are electronic equipment, chemicals, vehicles, wheat, and machinery. A bilateral investment treaty (BIT) between the United States and Bolivia came into effect in 2001. While the Morales government has stated that it will respect all current BITs, officials have also publicly expressed Bolivia’s intent to “re-open” these treaties to align them with the new constitution.

Agriculture accounts for roughly 11.3% of Bolivia’s GDP. The amount of land cultivated by modern farming techniques is increasing rapidly in the Santa Cruz area, where climate permits two crops a year. Soybeans are the major cash crop, sold in the CAN market. The extraction of minerals and hydrocarbons accounts for another 14% of GDP and manufacturing around 11%.

The Government of Bolivia remains heavily dependent on foreign assistance to finance development projects. Estimates indicate that as of 2008, the government owed $4.6 billion to foreign creditors. Between 1986 and 1998, Bolivia attended seven rounds of negotiations with Paris Club creditors and received U.S. $1.35 billion of bilateral debt forgiveness. The United States forgave almost all of Bolivia’s bilateral debt between 1999 and 2002 and strongly supported efforts to have multilateral institutions do the same. Bolivia received U.S. $1.95 billion in debt relief from HIPC (Heavily Indebted Poor Countries) in 1998 and HIPC II in 2001, including almost complete bilateral debt forgiveness.

In June 2005, the G-8 countries decided to provide renewed World Bank and International Monetary Fund (IMF) debt relief for the 18 participant nations of HIPC I and II through the Multilateral Debt Relief Initiative (MDRI). Bolivia received U.S. $232.5 million in debt relief from the IMF in January 2006 and approximately U.S. $1.5 billion in debt relief from the World Bank in June 2006. The Inter-American Development Bank (IDB) forgave $1 billion in debt in March 2007. Bolivia was one of three countries in the Western Hemisphere selected for eligibility for the Millennium Challenge Account in 2004. Bolivia qualified again in 2005 and 2006, and presented a proposal to the Millennium Challenge Corporation (MCC) in December 2005, which was superseded by a new proposal submitted September 2007. An MCC assessment scheduled for December 2007 was postponed due to unrest surrounding the constituent assembly process. MCC’s technical engagement with Bolivia remained paused for a year due to internal political instability. In December 2008, the MCC Board of Directors decided to not select Bolivia as eligible for compact assistance.

Information by U.S. Department of State

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