Fmilenio Milenio Report 29

8/4/2019 Fmilenio Milenio Report 29

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The Milenio Report on

The Bolivian Economy

FISRT SEMESTER 2010 September 2010


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Fundacin Milenio_________________________________________________________ i

September 2010

The Milenio Report on The Bolivian Economy


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Fundacin Milenio_________________________________________________________ ii

This report was prepared by the economic team of the Milenio Foundation: RolandoJordn; Mauricio Medinaceli and Napoleon Pacheco.

Research Assistants: Enrique Aranibar B., Marco Gavincha and Saul Quispe.

Coordination: Jose Luis Evia

English Version: Rubn Ferrufino

We Thank the Permanent Support of the Konrad Adenauer Foundation ofGermany in the production of this report.

Fundacion Milenio : Av. 16 de Julio No 1800, Edificio Cosmos, Piso 7

TELEFHONE

(591-2) 231788; FAX: (591-2) 2392341

P.O. BOX 2498

WEB PAGE:

www.fundacion-milenio.orgEmail:

[email protected]


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Fundacin Milenio_________________________________________________________ iii

Fundacion Milenio is pleased to present the 29th issue of the Milenio Report on theBolivian Economy. This time, the analysis covers information for the first semester

of 2010 and was prepared by a team of economic researchers of our institution. .

From the very first issue of the Milenio Report, published in 1997, the analysis of

the Bolivian economy performance has been based on primary official data. Thus,

it is important to notice that our work encountered again the problem of the delay in

the availability of information on some areas of the economy, particularly the real

sector. When this document went to printing, there was no available information on

the fiscal area for the first half of 2010. In consequence, the review of the fiscal

performance corresponds to the 2009 period, which in turn could not be evaluated

in our previous Report for the same reason. When available, we used the most

recent data in some topics, such as Debt. We hope that those responsible for

processing and disseminating the information can find effective ways to complete

their work without delay.

This is the first time that we present the Report in English, to make it available to

readers from all over the world and we hope it will make our work more useful to

those committed with development and democracy in Bolivia.

The Board of the Foundation is grateful to the professionals who prepared this

report and the team of research assistants, whose contribution is critical to deliver

a high quality product such as this report. Finally, we thank the continuing supportof the Konrad Adenauer Foundation of Germany.

Napoleon Pacheco Torrico

Executive Director

Presentation


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ContentI. EXTERNAL SECTOR

1. The international context

1.1. The economic behavior of our main commercial partners

1.2. The international energy market

1.3. Non energy raw materials and commodities

1.4. The terms of trade

2. External Sector

2.1. International reserves

2.2. Balance of payments

2.3. External Debt

2.4. Exchange Rate

II. ECONOMIC POLICY

1. Fiscal management

1.1. General Government

1.2. State Owned Companies

1.3. Non financial public sector

1.4. Fiscal Evolution at the First semester 2010

2. Monetary management

1.1. Monetary aggregates


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1.2. Inflation

III. THE FINANCIAL SYSTEM

1. Banking System

2. Private Financial Funds FFPs

IV. PRODUCTION AND INVESTMENT

1. Gross Domestic Product GDP

2. Investment

3. Regional Analysis

3.1. Hydrocarbons

3.2. Mining

3.3. Construction

3.4. Employment

4. Perspectives


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EXECUTIVE SUMMARYThe most relevant feature of the first half of this year was the recovery of prices for rawmaterial exports of Bolivia. Mining prices rose at 56.4 percent in the first quarter, whilenatural gas prices increased in the January-June period by almost 10 percent. Thisallowed, even with slight increases in volume, a higher value for traditional exports.Although the value of non-traditional exports showed a small increase, this was entirelydue to higher prices, because export volumes fell in this category. All in all, the final resultwas an important increase in the value of total exports (28.7 percent in the first half of thisyear) over the first half of 2009.

Even though the value of imports also increased (20.5 percent), this was mainly explainedby the rise in intermediate goods, largely due to an increased fuel import value. The tradebalance surplus in the first half of 2010 reached US$ 783.8 million (US$ 287.1 millionabove the surplus in the first half of 2009). This increase was partially offset by a fall incurrent transfers from abroad, so the current account balance in the first quarter of thisyear reached US$ 26.4 million (from US$ 185.5 million in the first quarter of 2009 to US$211.9 million the first quarter of 2010). This was not enough to offset the negative balancein the capital account US$ 238.9 million. At the end, the first semester the accounts showa deficit in balance of payments (and an equal level of reduction in international reserves)of U$ 42.8 million. The negative balance on the capital account is explained by the lowlevel of foreign investment, and the high negative balance of errors and omissions. Thelatter reflects the rise in unregistered imports, unrecorded capital outflows and / oraccumulation of foreign currency by the private sector (not at banks).

The higher export value and gas revenues have improved the fiscal accounts, whichclosed the semester with a surplus of Bs. 1900.0 million (about US$ 270.0 million)Unfortunately, there is little information on the evolution of the fiscal sector for the first halfof this year. However, a reported improvement in the execution of public investment andthe expansion of the public administration share in the Gross Domestic Product (GDP),suggests an expanded expenditure, thereby pulling the economy. Although at a slowerpace, the monetary sector continued an expansionary policy, with the net redemption ofsecurities for monetary regulation. This contributed to lower yields in the governmentbonds market. However, this policy has slowed in the second quarter, and the BancoCentral de Bolivia (BCB) is planning a strategy change for the second semester.

The improvement in the external sector and the demand boost driven by monetary policy(and probably fiscal policy), have increased the total demand for goods and services. Thiswas up 3.3 percent due to the increased external demand and 2.5 percent because ofincreased consumption of households. This higher demand was met by higher imports, butalso by increasing production. GDP grew at 3.3 percent the first quarter. The constructionsector had the highest growth (9.2 percent), followed by the oil and gas sector (8.2percent) and public administration (7.6 percent). Manufacturing grew by 4.6 percent;mining grew by 1.4 percent (in contrast to the reduction reported by the sector statistics).Although the 3.3 rate growth is far behind the recovery in the neighboring countries, it wasreflected in increased employment. According to official figures, the unemployment ratehas declined to 5.1 percent and 6.9 percent for men and women, respectively (lower thanthose recorded in the first half of 2009).


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The first semester GDP expansion responds to an increased foreign demand but alsointernal pulling forces. A demand-driven increase has been possible thanks to a moredynamic external sector (which has allowed an increase in export values) and highercapacity utilization in the economy. However, the shortage of investment, mainly private(foreign and national) generates uncertainty about the future. Today, the economy isbenefitting from investments made in the past 20 years; for example in hydrocarbons andinternational pipelines. The question is whether important investments being developedtoday (if any) will be enough to support future growth.

Foreign direct investment reached only US$ 156 million in the first quarter, compared withUS$ 245 million in the first quarter of 2009 and US$ 402 million in the first quarter 2008.Domestic private investment remains stagnated below 4 percent of GDP and can not becompensated by the increased level of public investment. There are no major projects inkey sectors of the economy (mining, oil or industry), aside state projects to createcompanies. Without additional investment and local production, further increases indemand will transfer to higher imports, and higher prices of nontradable goods (real state).

The slight reduction in international reserves and the increased value of imports show that

people decided to consume a greater portion of the disposable income generated by ahigher value of exports. This higher allocation to consumption has resulted in additionalpurchases of both local and imported goods. Thus, absorption has increased while savingshave decreased. This behavior reveals al least some of the characteristic features of aproblem named Dutch Decease. First, an specific sector in expansion (gas); growth in theexport value of that sector, mainly due to price effects, followed by internal absorption ofhigher disposable income (increased consumption), which determines higher demand (andprices) of non-tradables (real state). The construction sector has contributed significantlyto growth, expansion of the portfolio, and employment growth in the last semester.

Economic policy has allowed the transfer of higher international prices to higher domesticconsumption. This was achieved with an expansionary monetary policy and the imposition

of limits on investments abroad by local banks. Lending interest rates fell to encouragedomestic consumption. It should be mentioned, however, that monetary policy has littleimpact and must follow external conditions. This is particularly true when nominalexchange rates are fixed.

Despite the growth in consumption, the private productive sector has been rather cautiousin expanding spending. While the portfolio has grown, this increase has been moderateconsidering the magnitude of the reduction of interest rate, the increase in deposits andthe net redemption of securities of BCB. There is an extremely high level of liquidity invaults and so far, those resources are not promoting more capacity, investments andproduction. Thus, fiscal and monetary impulses have not been able to accelerate theprivate sector engines for growth in a sustainable manner. If prices and consumption drop,

the economy could feel adverse effects.

Finally, low investment combined with an increased demand for goods tend to generateincremental pressures in certain sectors of the economy. Such is the case of energy andfuels. A growing demand for liquids (diesel and gasoline) and Liquefied Gas of Petroleumcombined with a reduced domestic production, due to low investment and depletion offields, has conducted to a record value on imports of liquids. On the other hand, thegrowing local demand of natural gas, in the long run, may create serious trade offs. On theone hand, the pricing policy for gas consumed internally discourages investments


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postponing required additional production. On the other hand, gas that otherwise could beassigned to the export market, will have to be directed to local consumption. The resultcould be lower fiscal revenues and lower flows of reserves. That is, lower margins inmonetary and fiscal policies to promote growth.


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I. EXTERNAL SECTOR

1. The International context

The main event during the first semester 2010 was the recovery of the global economybased on the return to growth in the United States, China and India. Estimates point outthat world output, which contracted by 0.6 percent in 2009, will grow by 4.6 percent in2010. Growth figures for the United States are -2.4 percent in 2009 and a forecast of 3.3percent in 2010. China experienced a slowdown of 9.1 percent in 2009; however, in 2010growth is expected to arrive to 10.5 percent. Similarly, India's GDP will transit from 5.7percent to 9.4 percent. The newly industrializing Asian countries will go from a recession of-0.9 percent in 2009 to a growth level of 6.7 percent in 2010 1.

There is concern about the sustainability of growth since the fiscal incentives used toimpulse the recovery could become insufficient and exhausted; there is a significant

increase in government deficits and accumulation of sovereign debt. This would limitgradually the use of fiscal policy to continue supporting the growth in industrializedcountries.

The uncertainty about the strength of recovery worsens with the economic behavior of theEuro Zone. This area experienced a recession of -4.1 percent of GDP in 2009 andestimates suggest growth will be 1.0 percent in 2010 2. This situation is explained by thesovereign debt crisis in the Euro Zone, which led to pessimistic expectations not only inEurope but also in the U.S. The crisis, which was triggered by problems in Greece, can beconsidered as the second chapter of the financial crisis originated in U.S. subprimemortgages. The high fiscal deficits of most countries of the Euro area exceed the limit setin 6 percent of GDP. Thus, governments financed this gap by issuing bonds in the financialmarkets, and this led to a high public debt, exceeding 60 percent of GDP, which is themaximum level allowed in the Euro Zone 3. The late reaction of the European MonetaryUnion was reflected by a delayed action, as lender of last resort, to provide liquidity toGreece and other countries in the similar difficulties. This hindered the restoration ofconfidence and generated negative expectations

Even though there was uncertainty about the sustainability of the recovery, the prices ofraw materials have reacted favorably due to the extraordinary growth in China, India andthe newly industrialized Asian countries and their increased demand for basic products. Aswill be seen below, the Bolivian terms of trade have improved in the first quarter of 2010 ascompared to same period of 2009, driven by rising prices in natural gas exports to Braziland better prices of minerals, mainly tin, zinc, silver and lead. The result was a significantincrease in export value.

The recession in Euro Zone in 2009 and a weak growth in the first half of 2010 generatedhigh rates of unemployment. In June of this year, the figure was 10.0 percent and Spain

1 International Monetary Fund. World Economic Outlook daily. Update central projections. (July 2010)

2 Ibid.

3 A review of some of the financial problems of the European debt crisis and the implemented policies can be found at:

Fundacion Milenio: The new debt crisis. Economic Talks, No. 17 (July 2010)


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reported the highest rate at 20.0 percent in June 2010. 4 In June 2009 the figure was 18.1percent. Given the fact that more than 40 percent of remittances come to Bolivia fromSpain, that countrys macroeconomic situation led to a decrease of these flows to theeconomy.

1.1 The economic behavior of our main commercial partners

The European Monetary Union, which represents 10 percent of Bolivian exports, grew by0.6 percent between January and March of this year. Brazil, our principal trading partner,grew dramatically beating even the growth of South Korea, our second partner. Argentina,which buys 11.1 percent of Bolivian exports, has also experienced a significant expansionfollowed closely by Peru, a country which accounts for only 4.0 percent of exports (seetable 1).

(Change over similar previous period)

Change(Percent)

Participationstructure on Bolivian

exports

DETAILJan - Mar

2008Jan - Mar

2009Jan - Mar

20102010

China 11.3 6.2 11.9 1.8Brazil 6.3 (2.1) 9.0 33.9South Korea 5.5 (4.3) 8.1 15.0Argentina 8.5 2.0 6.8 11.1Peru 10.3 1.9 6.0 4.0Japan 1.2 (8.9) 4.6 1.6Colombia 5.4 (0.9) 4.4 4.8Bolivia (Plurinational State of) 6.6 2.9 3.3 -United States 2.0 (3.3) 2.4 7.5

Chile 3.7 (2.1) 1.0 1.3Euro Zone 2.2 (5.2) 0.6 10.0Venezuela (Bolivarian republic 4.9 0.5 (5.8) 4.7

AVERAGE /TOTAL 5.7 (1.1) 4.4 95.8

SOURCE: based on data of the Instituto Nacional de Estadstica (www.ine.gov.bo).(1) Information corresponds to the third quarter.

GDP OF THE PRINCIPAL COMMERCIAL PARTHNERS OF BOLIVIATABLE 1

Due to the global economic recovery, during the first half of 2010, imports of our majortrading partners rose 26.4 percent in comparison to the same period of 2009; however,this value remained below the one achieved in the same period of 2008 (before the crisis).The most significant increase was made by Brazil, an essential customer for Bolivia. Forthe first semester 2010, the general import value of this country rose 45.1 percent incomparison to the period January-June 2009. Argentina also showed a significantincrease. South Korea, which is the central market for exports of the San CristobalCompany complexes of zinc-silver-lead, had a strong growth of imports: 40.2 percent (seeTable 2).

4 Eurostat. Newsrelease Euroindicators (July 2010)


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(January June of each year)Value

(Millions of U.S. dollars)Change

(Percent)Incidence(Percent)

DETAIL 2008 2009 2010(p) 2009 2010(p) 2009 2010(p)

United States 1,301,279.0 927,086.0 1,137,621.0 (28.8) 22.7 (18.0) 14.5Japan 375,262.6 251,810.4 325,506.4 (32.9) 29.3 (5.9) 5.1South Korea 220,845.7 145,387.7 203,873.1 (34.2) 40.2 (3.6) 4.0Brazil 79,351.0 56,043.9 81,309.3 (29.4) 45.1 (1.1) 1.7Argentina 28,566.5 17,777.9 25,478.7 (37.8) 43.3 (0.5) 0.5Chile 28,252.8 17,918.3 24,635.0 (36.6) 37.5 (0.5) 0.5Colombia 18,931.7 15,574.0 18,296.9 (17.7) 17.5 (0.2) 0.2Peru 13,815.1 9,710.2 12,943.8 (29.7) 33.3 (0.2) 0.2Venezuela(Bolivarian republic of) (1) 13,460.0 13,639.0 8,829.0 1.3 (35.3) 0.0 (0.3)

TOTAL 2,079,764.4 1,454,947.4 1,838,493.2 (30.0) 26.4 (30.0) 26.4SOURCE: based on data of the Instituto Nacional de Estadstica (www.ine.gov.bo).

(1) January March of each year

(p) Preliminary.

TABLE 2IMPORTS OF THE PRINCIPAL COMERCIAL PARTHNERS OF BOLIVIA

The Euro devaluation, which has begun in December 2009 with the sovereign debt crisis

in the Euro area, continued until the first week of June. In early December 2009 the priceof the Euro in terms of the Dollar reached a peak of US$ 1.51 and then fell sharply until thefirst week of June to US$ 1.19. The second week the Euro tended to recover, reaching inJune the 30th a quote of US$ 1.23 (see Figure 1).

FIGURE 1U.S. DOLLAR - EURO EXCHAGE RATES

(June 2008 - June 2010)1.59

1.23

1.36

1.42

1.51

1.26

1.46

1.25

1.56

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

0 2 J u n

2 0

0 8

1 5 J u

l 2 0

0 8

2 7 A u g

2 0

0 8

0 9 O c

t 2 0

0 8

2 1 N o v

2 0

0 8

0 8 J a n

2 0

0 9

2 0 F e

b 2 0

0 9

0 6 A p r 2 0

0 9

2 2 M a y

2 0

0 9

0 6 J u

l 2 0

0 9

1 8 A u g

2 0

0 9

3 0 S e p

2 0

0 9

1 2 N o v

2 0

0 9

2 8 D e c

2 0

0 9

1 0 F e

b 2 0

1 0

2 5 M a r 2 0

1 0

1 1 M a y

2 0

1 0

2 3 J u n

2 0

1 0

U S $ /

SOURCE: data from the European Central Bank .

The Euro depreciation was the most complicated result of the sovereign debt crises inEurope, and has generated a flight incentive out of this currency into the U.S. Dollar, USgovernment bonds and gold.


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The higher value of the Dollar against the Euro has damaged Bolivia; because a fixedparity between the Boliviano and the Dollar, our currency tended to appreciate against theEuropean currency, thus affecting the competitiveness of exports to Europe.

1.2 The international energy market

The first half of 2010 saw a significant recovery in oil prices as result of an increaseddemand driven by the recovery of the global economy and the stagnation of world supply.According to the July report of the International Energy Agency, in the first quarter of 2010global oil demand was 86.6 million barrels per day (bpd), while supply amounted to 86.0million bpd. In the second quarter, demand remained constant at the previous level andsupply was 86.4 million bpd. That is, demand requirements, in both periods, were higherthan supply 5. The average price in the first half of 2009 was US$ 51.2 / barrel and forsimilar period of 2010 increased to US$ 78.2/ barrel, registering an escalation of 53percent. But even with the recovery in 2010, prices are below the levels reported in theperiod before the bubble of 2008 6. In fact, between January and February 2008 theaverage price was US$ 94.2/ barrel (see Figure 2).

FIGURE 2PRICE EVOLUTION OF PETROLEUM WTI

(June 2007 - June 2010)

0

20

40

60

80

100

120

140

160

J u n - 0

7

A u g - 0

7

O c

t - 0 7

D e c -

0 7

F e

b - 0

8

A p r -

0 8

J u n - 0

8

A u g - 0

8

O c

t - 0 8

D e c -

0 8

F e

b - 0

9

A p r -

0 9

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9

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9

O c

t - 0 9

D e c -

0 9

F e

b - 1

0

A p r -

1 0

J u n - 1

0

U S $ / B A R R I L

SOURCE: based on data of the Energy Information Administration.WTI: West Texas Intermediate.

Oil prices not only respond to changes in global supply and demand, but also to the

relationship between the Dollar and the Euro. As we noted in the Economic Report No. 28for 2009, the weakness of the Dollar against the Euro and other currencies, plus the lowinterest rates for Federal funds in the US (0.25 percent since December 2008), pushedspeculators to borrow in Dollars to acquire other currencies and commodities, including oil.The appreciation of the Dollar against the Euro, during most of the first half 2010, implied a

5 International Energy Agency (IEA) Oil Market Report (July/13/2010)

6 The average was 122.1US$/ barrel, registering a maximum of 133.9 US$ / barrel in June


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change, so it is possible that the speculative demand for oil slowed down so the price of oilhas responded largely to the forces of supply and demand.

In comparison to similar period of 2009, the first half of 2010 the international price ofnatural gas (Henry Hub) rose from an average of 4.12 US$ / million British thermal units(MMBtu) to 4.71 US$ / MMBtu; that is, an increase of 14.3 percent. However, the averageprice in 2010 was considerably less than the record reported between January and June2008 (average of 10.03 US$ / MMBtu). Behind the average, in January 2010 the pricepeaked to 5.83 US$ / MMBTu and the following months decreased to reach 4.03 US$ / MMBtu in April. Finally between May and June recovered again so the closing figure forthe semester reached 4.80 US $ / MMBtu (see Figure 3).

FIGURE 3NATURAL GAS PRICE EVOLUTION (HENRY HUB)

(June 2008 - June 2010)

3.74.5

7.5

1.8

3.3

13.3

12.2

0

2

4

6

8

10

12

14

J u n - 0

8

J u

l - 0 8

A u g - 0

8

O c

t - 0 8

N o v - 0

8

J a n - 0

9

F e

b - 0

9

A p r -

0 9

M a y - 0

9

J u

l - 0 9

A u g - 0

9

S e p - 0

9

N o v - 0

9

D e c - 0

9

F e

b - 1

0

M a r -

1 0

M a y - 1

0

J u n - 1

0

U S $ / M M B T U

SOURCE: based on data of the Nebraska Energy Office.

Moreover, during the first half of 2010 the average prices of liquefied natural gas (LNG)reached US$ 3.34 / MMBtu, 17.1 percent lower when compared to the January-June 2009prices (4.03 US$ / MMBTU). Furthermore, they have been 81.5 percent lower incomparison to the prices in similar semester of 2008, when they reached a remarkablequote of 7.18 US$ / MMBtu (see Figure 4). LNG prices are below those for natural gas,one reason for that is that LNG prices are related to cash spot operations.

The Economic Report No. 28 stated that another cause for this price decline is theproliferation, in various parts of the world, of re-gasification and liquefaction plants. Thispermits a larger number of tankers to transport liquid natural gas and increase the supplyof this product. In South America, the most recently released liquefaction plant is located inSouthern Peru, Melchorita, and allows gas exports from Camisea to the port of Manzanillo,Mexico.


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1.3 Non energy raw materials and commodities

The evolution of prices for non-energy commodities, measured by an index that includesthe prices of nonfood agricultural products, agricultural products, food and metals, showeda significant recovery in the first half of 2010 over the same period of 2009. The average ofthis index in 2010 was 210.6, while in 2009 scored 168.1. Despite this recovery, the indexis below the 2008 record, when it reached 252.8.

The boost of the overall index came from the strong recovery in metal prices. The averageof this group, between January and June 2009 and 2010 respectively, rose from 143.1 to236.6 (93.5 percentage points). Second in the ranking are the prices of nonfoodagricultural products, with an increase of 83.4 percentage points. Meanwhile food pricesrose slightly (see Figure 5).

FIGURE 5COMMODITY INDEX NO ENERGY

(June 2006 - June 2010)

151.0

261.8

201.1169.2

50

100

150

200

250

300

350

J u n - 0

6

A u g - 0

6

O c t - 0

6

D e c -

0 6

F e

b - 0

7

A p r -

0 7

J u n - 0

7

A u g - 0

7

O c t - 0

7

D e c -

0 7

F e

b - 0

8

A p r -

0 8

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8

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8

O c t - 0

8

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0 8

F e

b - 0

9

A p r -

0 9

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9

A u g - 0

9

O c t - 0

9

D e c -

0 9

F e

b - 1

0

A p r -

1 0

J u n - 1

0

I N D E X ( 2 0 0 0 =

1 0 0 )

GeneralNon-food agriculturalMetalsFood

SOURCE: based on data of the Banco de Espaa.

1.4 The terms of trade

The first quarter of 2010 the Bolivian terms of trade increased by 12.6 percent over thesame period of 2009, surpassing the 8.7 percent growth registered previously (see Figure6). The significant increase in the terms of trade responds to the global economic recoveryand a renewed growth in the demand for raw materials.


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FIGURE 6TERMS OF TRADE(1q/2006 - 1q/2010)

136.8

124.1

128.9

123.4

113.2

116.3

106.0

112.1

91.2

80

90

100

110

120

130

140

1q-06 2q-06 3q-06 4q-06 1q-07 2q-07 3q-07 4q-07 1q-08 2q-08 3q-08 4q-08 1q-09 2q-09 3q-09 4q-09 1q-10

I N D E X ( 2 0 0 6 =

1 0 0 )

SOURCE: based on data of the Banco Central de Bolivia.

2. The external sector

The first semester 2010 the Bolivian external sector has characterized by a recovery ofimportant variables in comparison to the equivalent 2009 period. This is the case for exportand import values, due to both, the improvement in export and import prices of some keyproducts, such as fuel. Also, there was a recovery in export volumes for mining, oil andsome non-traditional products. The improvement in the external sector is a rebound effectover the first half of 2009, when the economy was in the midst of the effects of theinternational crisis of late 2008, and spanned until the first half of 2009, when raw materialprices and quantities registered a significant contraction. During the first half of 2010 otherimportant sources of external revenues showed a downward trend. Remittances fromabroad fell sharply as a result of rising unemployment in developed countries. In addition,foreign direct investment showed lower levels as a result of a deteriorated investmentclimate in the Bolivia. The international reserves, particularly foreign exchange, haveshown a decline, suggesting that the boom of foreign income the country has enjoyed inrecent years has reached a probable maximum. On the other hand, external debt hasincreased, partly to offset the decline in the flow of external resources. Also calls attention

the highly negative value of the account errors and omissions, which may be showing agreater agents preference of to keep savings in foreign currency outside the formalfinancial system. Finally, the real exchange rate showed a recovery (real depreciation)since February 2009, and reports a slight real appreciation between December 2009 andMay 2010.


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2.1 International reserves

The first half of 2010 reports the value of the Net International Reserves (NIR) at CentralBank of Bolivia (BCB) with a decline of US$ 42.8 million, amounting to US$ 8537.3 millionby the en of June. This minor contraction is explained by a decrease of US$ 175.6 millionin foreign reserves, which was offset by an increase in gold prices, thus augmenting thevalue of gold reserves at US$ 132.8 million (see Table 3).

(At June or December of each years)Value

(Millions of U.S. Dollars)Growth Rate

(Percent)

DETAIL Dec-08 Jun-09 Dec-09 Jun-10Dec 09 - Dec

08Jun 10 - Jun

09Jun 10 - Dec

09

Gross international reserves 7,722.2 7,954.5 8,580.5 8,536.5 11.1 7.3 (0.5)Short-term obligations 0.2 (1.1) 0.4 (0.8) 155.2 (31.6) (301.5)Net international reserves (NIR) 7,722.0 7,955.6 8,580.1 8,537.3 11.1 7.3 (0.5)

NIR less gold 6,927.6 7,099.9 7,582.5 7,406.9 9.5 4.3 (2.3)

FUENTE: Banco Centra de Bolivia (www.bcb.gov.bo).

TABLE 3GROSS AND NET INTERNATIONAL RESERVES OF BANCO CENTRAL DE BOLIVIA

On the other hand, the level of consolidated reserves of the financial system decreased inUS $ 144.3 million, out of which US$ 42.8 million is due to the fall of the NIR of BCB andUS$ 101.5 million responds to a reduction of NIR in the rest of the financial system.Without considering the increased value of gold reserves at BCB, the fall in theconsolidated financial system NIR would have been US$ 319.9 million (see Figure 7).

Overall, it appears that there is a stagnated or downward trend in the level of NIR at thefinancial system. The boom of international revenues might have reached a peak andthere is now a tendency to decrease or, at best, remain constant. All in all, the current levelof reserves is high and sufficient to ensure a fixed exchange rate, however it will beimportant to monitor this variable in the future


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FIGURE 7TREND OF NET INTERNATIONAL RESERVES

(June 2007 - June 2010)

4,920.6

9,159.4

10,074.6 9,930.3

8,537.38,580.1

7,955.6

3,890.7

0

2,000

4,000

6,000

8,000

10,000

12,000

J u n - 0

7

A u g - 0

7

O c

t - 0 7

D e c - 0

7

F e

b - 0

8

A p r -

0 8

J u n - 0

8

A u g - 0

8

O c

t - 0 8

D e c - 0

8

F e

b - 0

9

A p r -

0 9

J u n - 0

9

A u g - 0

9

O c

t - 0 9

D e c - 0

9

F e

b - 1

0

A p r -

1 0

J u n - 1

0

M I L L I O N S O F U

. S .

D O L L A R S

ConsolidatedBCBBankingNonbank


2.2 Balance of payments

The evolution of the NIR at the financial system and the BCB reflects the trend in thebalance of payments. In the following lines we discuss these results, analyzing the tradebalance, current and capital accounts.

2.2.1 Trade balance

By the end of the first semester 2010, the trade balance surplus reached US$ 703.8million, an increase of US$ 287.1 million in comparison to the same period in 2009. Thistrend is explained by an increase in exports and imports in US$ 702.9 and US$ 415.7million respectively (see Table 4). It is important to keep in mind that during the first half of2009 the Bolivian economy was experiencing the effects of the international crisischaracterized by a substantial contraction in export prices and import levels. For thesecond half of 2009 and the first semester of 2010, export prices recovered, however theydid not reach the levels existing before the eruption of the crisis in 2008. This factor largely

explains the recovery of exports.


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(January - June of each years)Value

(Millions of U.S. Dollars)Change

2009-2010 (P)

ITEMS 20092010

(p)Absolute

(Millions of U.S.Dollars)

Relative

(Percent)

Merchandise trade balance 416.7 703.8 287.1 68.9Exports FOB (1) 2,445.9 3,148.8 702.9 28.7

Imports CIF 2,029.2 2,445.0 415.7 20.5

SOURCE: Generated based on data of the: Instituto Nacional de Estadsti ca INE (www.ine.gov.bo).

(1) Does not include re-exports or personal effects.

(p) Preliminary.

TRADE BALANCETABLE 4

2.2.2 Exports

The recovery of exports during the first half of 2010 over the same period in 2009, can beexplained by an increase in mining exports which grew by US$ 395.5 million, followed bythe oil sector with an expansion of US$ 233.5 million and finally by non-traditional exportsthat increased US$ 73.5 million (see Table 5). These results tend to enlarge thedependence of Bolivian exports on extractive sectors. Mining and hydrocarbonsincremental exports during the period accounted for 89.5 percent of the total increase.

(January - June of each years)

Value(Millions of U.S. Dollars)

Structure(Percent)

Change2009-2010 (P)

DETAIL 2009 2010 (p) 2009 2010 (p)Absolute


Relative(Percent)

Structure(Percent)

Hydrocarbons 1,097.2 1,330.7 44.9 42.3 233.5 21.3 33.2Mining 750.2 1,145.7 30.7 36.4 395.5 52.7 56.3Nontraditional 598.5 672.4 24.5 21.4 73.9 12.3 10.5

TOTAL 2,445.9 3,148.8 100.0 100.0 702.9 28.7 100.0

SOURCE: Generated based on data of the: Instituto Nacional de Estadstica ( wwww.ine.gov.bo).

(p) Preliminary.

BOLIVIA EXPORTSTABLE 5

Figure 8 shows the cyclical trend on each component and total exports in response to the2008 crisis. Initially ther e was a significant drop in their value as result of the sharp decline

in the prices of raw materials. Later, towards the end of 2009 and first semester of 2010,prices recovered, which positively affected the value of exports registered in June of thisyear.


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FIGURE 8EXPORT VALUE OF TRADITIONAL AND NON TRADITIONAL SECTORS

(January - June of each year)

1,616.0

1,330.71,018.8

1,258.9

3,299.7

2,445.9

3,148.8

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2004 2005 2006 2007 2008 2009 2010


. S .

D O L L A R S

Minerals

HydrocarbonsNontraditional

TOTAL

SOURCE: based on data of the Instituto Nacional de Estadstica.

Table 6 presents the decomposition of the increase in export value during the first half ofthe year; that is, the portion explained by a higher price effect and that attributable tohigher volume. Out of the total increase in export value, which is US$ 702.9 million, US$565.6 million are due to higher prices (80.5 percent of the total increase) and US$ 137.3million to higher volumes (19.5 percent increase). On average, export prices rose in 23.1percent, volumes in 5.6 percent and the total value exported in 28.7 percent.

At the sector level, the increase in mining exports is explained mainly by the recovery inprices (92.0 percent of the total), due to higher quotes for zinc, silver, tin and lead. Thegold price has experienced a fall, which reduced the export value of this mineral.

In the hydrocarbons sector, the price effect explains little over two thirds of the increase inthe value of exports (67.9 percent). Finally, in the non-traditional export sector, theincrease in export value is due solely to higher prices, as export volumes experienced afall, as is the case jewelry and sugar.


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Change(Millions of U.S. Dollars)

ChangePercent

2009 2010 (p)Variation

TotalEffect

VolumeEffectPrice

VariationTotal

EffectVolume

EffectPrice

TOTAL MINING 750.2 1,145.7 395.5 31.5 363.9 52.7 4.2 48.5

Zinc 254.5 452.6 198.1 12.5 185.7 77.8 4.9 72.9Silver 259.3 372.5 113.2 44.9 68.3 43.7 17.3 26.3Tin 103.2 154.0 50.8 7.4 43.4 49.3 7.2 42.1Lead 52.7 75.9 23.2 (6.8) 30.0 44.1 (12.9) 56.9Gold 59.2 47.1 (12.1) (3.2) (8.9) (20.5) (5.5) (15.0)Antimony 5.2 20.7 15.5 8.3 7.2 298.7 160.0 138.7Wolfram 8.7 10.7 2.1 1.8 0.3 23.8 20.4 3.3Other 7.5 12.2 4.7 1.4 3.2 62.5 19.1 43.3

TOTAL OIL 1,097.2 1,330.7 233.5 75.0 158.5 21.3 6.8 14.4

Natural Gas 1,044.3 1,276.9 232.6 79.6 153.1 22.3 7.6 14.7Other hydrocarbons 52.9 53.7 0.9 (19.1) 19.9 1.6 (36.1) 37.7

TOTAL NON-TRADITIONAL 598.5 672.4 73.9 (7.6) 81.5 12.3 (1.3) 13.6

Soybean 249.7 249.9 0.2 0.9 (0.6) 0.1 0.3 (0.3)Timber 36.1 43.9 7.8 13.5 (5.8) 21.5 37.4 (15.9)Chestnut 30.2 42.7 12.5 0.6 11.9 41.4 1.8 39.6Beverages 20.6 20.9 0.2 1.2 (1.0) 1.2 5.9 (4.7)Leather 7.3 16.8 9.6 11.7 (2.1) 132.2 161.6 (29.5)Sugar 17.5 12.3 (5.2) (8.2) 3.0 (29.7) (46.8) 17.0Imported gold jewelry 19.4 10.5 (8.8) (12.0) 3.2 (45.7) (62.0) 16.4Jewelry 1.1 10.2 9.1 6.2 2.9 866.4 587.5 278.9Caf 5.1 4.8 (0.3) 0.1 (0.3) (5.4) 1.0 (6.4)Cocoa 0.8 2.2 1.4 1.8 (0.4) 166.6 215.6 (49.0)Cotton 1.2 1.0 (0.2) (0.1) (0.1) (13.2) (5.3) (7.9)Other 209.6 257.1 47.5 (13.2) 60.7 22.7 (6.3) 29.0

TOTAL EXPORTS 2,445.9 3,148.8 702.9 137.3 565.6 28.7 5.6 23.1

SOURCE: Generated based on data of the: Instituto Nacional de Estadstica (www.ine.gob.bo).(p) Preliminary.

TABLE 6PRICE AND VOLUME EFFECTS OF EXPORTS

There is a strong link between sectorial and regional exports; the department of Potosi isprimarily associated with mining exports, Tarija with oil exports, and Santa Cruz with agro-industrial exports (nontraditional). These three departments account for 78.7 percent oftotal exports during the first half of 2010, and explained 74.4 percent of the observedincrease in exports during this period - when compared to the first half of 2009. Due to the price rise in mining, Potos exports grew in US$ 321.6 million. Exports from Oruro, which isalso a department with mining activity, increased in US$ 64.1 million. Moreover, as a resultof recovery in the price of oil and hydrocarbons, exports from Tarija augmented in US$159.4 million (see Table 7).


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(Millions of U.S. Dollars)Structure(Percent)

Change2009-2010 (P)

DETAIL 2008 2009 2010 (p) 2009 2010 (p)Absolute

(Millions ofU.S. Dollars)

Relative

(Percent)

Tarija 974.2 732.2 891.6 29.9 28.3 159.4 21.8Potosi 692.3 558.5 880.1 22.8 28.0 321.6 57.6Santa Cruz 935.9 664.6 706.4 27.2 22.4 41.8 6.3Oruro 191.6 140.8 204.9 5.8 6.5 64.1 45.5La Paz 176.6 122.5 191.9 5.0 6.1 69.4 56.6Cochabamba 197.1 130.6 152.4 5.3 4.8 21.8 16.7Chuquisaca 86.8 63.3 76.7 2.6 2.4 13.3 21.1Beni 37.0 27.5 36.1 1.1 1.1 8.6 31.3Pando 8.1 5.9 8.7 0.2 0.3 2.8 48.3

TOTAL 3,299.7 2,445.9 3,148.8 100.0 100.0 702.9 28.7

SOURCE: Generated based on data of the: Instituto Nacional de Estadstica (www.ine.gov.bo).

(p) Preliminary.

TABLE 7EXPORTS BY DEPARTMENT

There is little market diversification in Bolivian exports. During the first half of 2010, Brazil,which focuses the bulk of hydrocarbons exports (natural gas), was the destination for 35.0percent of total exports, and 37.9 percent of export growth during this period. Other twocountries accounted for significant increases in exports, as is the case of Belgium andJapan, demanding mostly minerals. Also relevant in the increase were countries like USA,Peru and China (see Table 8).


Value(Millions of U.S. Dollars) Structure(Percent) Change2009-2010(P)

PAS OF DESTINY 2008 2009 2010(p) 2009 2010(p)Absolute

(Millions ofU.S. Dollars)

Relative(Percent)

Brasil 1,393.9 835.6 1,101.8 34.2 35.0 266.1 31.8Estados Unidos 203.6 175.2 256.8 7.2 8.2 81.6 46.5Argentina 264.0 253.6 248.5 10.4 7.9 (5.1) (2.0)Japn 120.6 47.0 222.0 1.9 7.1 175.0 372.8Corea (sur) Repblica de 393.2 365.2 214.0 14.9 6.8 (151.2) (41.4)Per 146.4 109.6 173.3 4.5 5.5 63.7 58.1Blgica 99.0 31.1 166.6 1.3 5.3 135.5 435.3Venezuela 98.1 131.5 154.8 5.4 4.9 23.3 17.8Colombia 100.7 133.6 116.8 5.5 3.7 (16.8) (12.6)China 80.0 47.3 108.1 1.9 3.4 60.8 128.7Suiza 85.5 83.1 69.0 3.4 2.2 (14.1) (17.0)Reino Unido 46.2 29.7 49.3 1.2 1.6 19.6 66.1Chile 36.4 28.5 40.5 1.2 1.3 12.0 42.0Resto de Pases 232.0 174.9 227.3 7.2 7.2 52.4 30.0

TOTAL 3,299.7 2,445.9 3,148.8 100.0 100.0 702.9 28.7SOURCE: Generated based on data of the: Instituto Nacional de Estadsti ca (www.ine.gov.bo).

(p) Preliminary.

TABLE 8BOLIVIA EXPORTS BY COUNTRY OF DESTINATION


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2.2.3 Imports

During the first semester imports reported 20.5 percent growth over the same period in2009, an amount equivalent to US$ 415.7 million. This increase is primarily a recovery,after touching a low level in the first half of 2009 when the international crisis affected thelevel of Bolivia's foreign earnings. Most of the recovery is explained by higher imports ofintermediate goods, which grew in 26.2 percent (US$ 306.4 million). Much of thisexpansion is related to an increase in value of fuel imports, because the country hasbecome more dependent on imports to cover the domestic demand of diesel oil, gasolineand Liquid Gas of Petroleum. The boost in fuel import value is also linked to the recoveryof prices in international markets, after the sharp drop experienced during the internationalcrisis. Imports of capital goods also showed an increase but smaller (16.7 percent),equivalent to US$ 76.3 million. Finally, imports of consumer goods grew by 8.4 percent,equivalent to US$ 33.6 million (see table 9).



Change2009-2010 (P)



Relative(Percent)

Intermediate goods (1) 1,168.0 1,474.4 57.6 60.3 306.4 26.2Capital goods 456.0 532.3 22.5 21.8 76.3 16.7Consumer Goods (2) 400.9 434.5 19.8 17.8 33.6 8.4Other (3) 4.3 3.8 0.2 0.2 (0.5) (12.3)

TOTAL 2,029.2 2,445.0 100.0 100.0 415.7 20.5

SOURCE: Generated based on data of the: Instituto Nacional de Estadstica (wwww.ine.gov.bo).

(1) Fuels and lubricants, transport equipment, parts and accessories and industrial supplies not elsewhere specified.

(2) Food and beverages, and consumer goods not elsewhere specified.

(3) Personal effects and goods not elsewhere specified.

(p) Preliminary.

TABLE 9BOLIVIA IMPORTS

The raise in fuel imports was 97.4 percent, equivalent to US$ 165.8 million. Otherimportant items explaining the higher imports level were industrial supplies, capital goodsand consumer goods. Together, these three items represented an increase of US$ 250.6million (see Table 10).


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Structure(Percent)

Change2009-2010 (P)



Relative(Percent)

Incidence(Percent)

Food & Beverage 191.8 176.4 9.5 7.2 (15.4) (8.0) (0.8)Industrial Supply 735.3 860.5 36.2 35.2 125.3 17.0 6.2Fuels and lubricants 170.3 336.0 8.4 13.7 165.8 97.4 8.2Capital goods 456.0 532.3 22.5 21.8 76.3 16.7 3.8Transport equipment, parts and accessories 262.5 277.8 12.9 11.4 15.3 5.8 0.8Consumer Goods 209.1 258.2 10.3 10.6 49.0 23.4 2.4Goods not specified elsewhere 1.9 0.9 0.1 0.0 (1.0) (52.0) (0.0)Personal effects 2.4 2.9 0.1 0.1 0.4 18.4 0.0

TOTAL 2,029.2 2,445.0 100.0 100.0 415.7 20.5 20.5

SOURCE: Generated based on data of the: Instituto Nacional de Estadstica (wwww.ine.gov.bo).

(p) Preliminary.

TABLE 10BOLIVIA IMPORTS BY MAJOR BUSINESS CATEGORIES

2.2.4 Current accountThe first semester 2010 the balance of payments current account reports a surplus of US$211.9 million, 14.3 percent higher than the previous year. This result in the trade balancehas had a significant impact in the current account surplus, accounting for 71.8 percent ofit (see Table 11).

Net factor income was negative in US$ 143.9 million, composed by interest incomecoming from BCB's international reserves (US$ 50.2 million); interest payments abroad(US$ 25.1 million) and other investment income, generated by the remittance of profitsassociated with foreign direct investment (FDI) (US$ 177.6 million).

Also important in explaining the current account surplus are current transfers from abroad,which in total added up US$ 256.6 million. Mo st of these were private transfers totalingUS$ 220.4 million, mainly remittances from Bolivians living and working abroad.


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(January - March of each years)Value


Growth Rate(Percent)

ITEMS 2008 2009 (p) 2010 (p) 2009 (p) 2010 (p) 2009 (p) 2010 (p)

Current Account 553.8 185.5 211.9 100.0 100.0 (66.5) 14.3

Merchandise trade balance 449.6 58.8 152.2 31.7 71.8 (86.9) 158.9

Exports (FOB) 1,485.1 1,088.0 1,305.7 586.5 616.1 (26.7) 20.0

Imports (CIF) 1,035.6 1,029.2 1,153.4 554.8 544.2 (0.6) 12.1

Factor income (net) (155.4) (145.4) (143.9) (78.4) (67.9) (6.4) (1.0)

Interest received (BCB and private) 97.0 71.6 50.2 38.6 23.7 (26.2) (30.0)

Interest due (40.3) (30.6) (25.1) (16.5) (11.8) (24.1) (18.1)Other investment income (net) (219.0) (194.1) (177.6) (104.6) (83.8) (11.4) (8.5)

Compensation of employees (net) 6.9 7.7 8.6 4.2 4.1 11.6 11.6

Services (net) (47.0) (38.2) (53.0) (20.6) (25.0) (18.7) 38.7

Transfers 306.6 310.2 256.6 167.2 121.1 1.2 (17.3)

Excluding official HIPC 40.8 71.3 36.1 38.4 17.0 74.8 (49.4)

Donations for relief HIPPC 5.0 4.6 0.1 2.5 0.1 (8.0) (97.0)

Private 260.7 234.3 220.4 126.3 104.0 (10.1) (5.9)

SOURCE: Banco Central de Bolivia (www.bcb.gov.bo).

FOB: Free on Board.

CIF: Cost, Insurance and Freight.(p) Preliminary.

TABLE 11BALANCE OF PAYMENTS ON CURRENT ACCOUNT

2.2.5 Private Transfers

During the first quarter of 2010, net private transfers were US$ 220.4 million, 5.9 percentlower over the level in the same period in 2009. Workers' remittances, the maincomponent of private current transfers from abroad, fell 5.0 per cent - equivalent to areduction of US$ 11.6 million (see Table 12).

(January - March of each years)Value

(Millions of U.S. Dollars)Change

2008(p)-2009(p)Change

2009(p)-2010(p)

DETAIL 2008 2009(p) 2010(p) Absolute Relative Absolute RelativeCREDIT 283.5 256.9 245.2 (26.6) (9.4) (11.7) (4.5)Workers' remittances 258.5 233.0 221.4 (25.5) (9.9) (11.6) (5.0)Other transfers 25.0 23.8 23.8 (1.1) (4.4) (0.0) (0.2)

DEBIT 22.7 22.6 24.8 (0.1) (0.6) 2.2 9.8Workers' remittances 21.6 21.8 23.9 0.2 0.8 2.1 9.7Other transfers 1.1 0.8 0.9 (0.3) (27.4) 0.1 12.5

NET BALANCE 260.7 234.3 220.4 (26.5) (10.1) (13.9) (5.9)SOURCE: Generated based on data of the: Banco Central de Bolivia (www.bcb.gob.bo).

(p) Preliminary.

PRIVATE TRANSFERSTABLE 12

Figure 9 shows that after peaking at US$ 292.6 million in the third quarter of 2008,remittances of workers have experienced a steady decline in subsequent years, as a resultof the emergence of international crisis.


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FIGURE 9REMITTANCES VALUE

(1q/2006 - 1q/20010)

94.84

282.25292.65

234.29

268.63

220.40

50

100

150

200

250

300

350

1q-06 2q-06 3q-06 4q-06 1q-07 2q-07 3q-07 4q-07 1q-08 2q-08 3q-08 4q-08 1q-09 2q-09 3q-09 4q-09 1q-10


. S .

D O L L A R S


2.2.6 Capital Account

During the first quarter of 2010, the capital account of the balance of payments (includingthe category of errors and omissions) recorded a deficit of US$ 238.9 million, higher thanthe corresponding figure in 2009. The external capital account referred to the public sector

remained roughly in balance, as the net disbursements of medium and long term debtwere almost equal to net redemptions. Regarding capital transactions of the private sector,they showed a surplus of US$ 110.0 million, comprised mainly of net FDI flows of US$46.6 billion, portfolio investments for US$ 49.3 million and private debt of medium andlong-term US$ 58.8 million. The private sector made repayments of short-term debt of US$63.0 million (see table 13).


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(January - March of each year)


Change(Millions of U.S. Dollars)


ITEMS 2008 2009 (p) 2010 (p) 2009 (p) 2010 (p) 2009 (p) 2010 (p)

Capital and financial account (including Eand O) 272.0 (181.9) (238.9) (453.9) (57.0) (166.9) 31.3Capital and financial account (excluding Eand O) 211.3 (16.5) 108.7 (227.8) 125.2 (107.8) (758.8)

Public Sector 12.0 (8.7) (1.3) (20.7) 7.4 (172.5) (85.1)Capital transfers 0.0 0.0 0.0 0.0 0.0 n.a. n.a.

Loans medium and long term (net) 10.0 14.6 36.3 4.6 21.7 46.0 148.6

Other capital (net) (1) 2.0 (23.3) (37.6) (25.3) (14.3) (1,265.0) 61.4

Private Sector 199.3 (7.8) 110.0 (207.1) 117.8 (103.9) (1,510.3)Capital transfers 2.5 3.3 1.6 0.8 (1.7) 32.0 (51.5)

Debt relief 0.0 22.5 0.0 22.5 (22.5) #DIV/0! (100.0)Foreign direct investment (net) 251.9 134.3 46.6 (117.6) (87.7) (46.7) (65.3)Portfolio investment (11.8) (162.7) 49.3 (150.9) 212.0 1,278.8 (130.3)Net private debt medium and long term (2) (3.0) (27.4) 58.8 (24.4) 86.2 813.3 (314.6)Net private debt short-term (3) 3.4 (8.8) (63.0) (12.2) (54.2) (358.8) 615.9Net foreign assets of short-term (4) (24.7) 75.9 8.8 100.6 (67.1) (407.3) (88.4)

Another private sector capital (19.0) (44.9) 7.9 (25.9) 52.8 136.3 (117.6)Errors and Omissions 60.7 (165.4) (347.6) (226.1) (182.2) (372.5) 110.2TOTAL BALANCE OF PAYMENTS 825.7 3.7 (27.0) (822.0) (30.7) (99.6) (829.7)Financing (825.7) (3.7) 27.0 822.0 30.7 (99.6) (829.7)

Net International Reserves BCB (5) (825.7) (3.7) 27.0 822.0 30.7 (99.6) (829.7)

SOURCE: Banco Central de Bolivia ( www.bcb.gov.bo).

(1) Includes contributions to international organizations and liabilities.

(3) Excludes banks and nonbank financial institutions.

(4) Includes banks and nonbank financial institutions, excluding RALs.

(5) Consider a fixed exchange rate for the SDR and Euro fixed price of gold.

E y O: Errors and Omissions.

n.a. : Not applicable.

(p) Preliminary.

(2) Excluding intra-company loans which are recorded in FDI.

TABLE 13BALANCE OF PAYMENTS CAPITAL AND FINANCIAL ACCOUNT

Finally, it is worth noting the high negative balance in the account of errors and omissionsfor US$ 347.6 million, showing that a significant outflow of capital is not registered, ahigher level of imports is not recorded and / or ultimately, there is more hoarding of foreigncurrency by the private sector through informal channels of financial intermediation.

2.2.7 Foreign Direct Investment (FDI)

FDI inflows remained at extremely low levels during the first quarter of 2010, reaching anet value of US$ 45.0 million, 76.7 percent lower when compared to the level observed inthe same period of 2009. While gross investment flows received during this period wereUS$ 156.0 million, the divestment was US$ 111.0 million. These alarming low levels of FDIare largely due to the deterioration in the investment climate in the country, and reformsundertaken by the current government, which in essence are not favorable to privateprojects (see table 14)

Gross foreign investment flows were reduced in virtually all sectors of activity. FDI in the oilsector was lower at 35.1 per cent, reaching US$ 49.1 million; the value in mining fell by66.0 percent to close in US$ 17.7 million; industry FDI fell by 38.5 percent to reach US$


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46.4 million. On the positive side, there was an increase in commerce, electricity and otherservices in 6.1 percent; however these flows reached a weak value of US$ 19.0 million.

(At first quaterly of each years)

Value(Millions of U.S. Dollars) Change(Millions of U.S. Dollars) Growth Rate(Percent)

ITEMS 2008 2009 (p) 2010 (p) 2009 (p) 2010 (p) 2009 (p) 2010 (p)

TOTAL RECEIVED 402.0 245.0 156.0 (157.0) (89.0) (39.1) (36.3)

Hydrocarbons 84.6 75.6 49.1 (9.0) (26.5) (10.6) (35.1)

Mining 175.8 52.0 17.7 (123.8) (34.3) (70.4) (66.0)Industry 83.7 75.5 46.4 (8.2) (29.1) (9.8) (38.5)Transport, storage and communications (4.0) 23.9 23.8 27.9 (0.1) (697.5) (0.4)

Trade, electricity and other services 61.9 17.9 19.0 (44.0) 1.1 (71.1) 6.1

DISINVESTMENT (148.8) (52.0) (111.0) 96.8 (59.0) (65.1) 113.5

NET FOREIGN DIRECT INVESTMENT 253.2 193.0 45.0 (60.2) (148.0) (23.8) (76.7)

ADJUSTMENT

Purchase of shares by YPFB 0.0 (60.3) 0.0 (60.3) 60.3 n.a. n.a.

ADJUSTED NET FOREIGN DIRECT INVESTMENT 253.2 132.7 45.0 (120.5) (87.7) (47.6) (66.1)

SOURCE: Banco Central de Bolivia ( www.bcb.gov.bo).n.a.: not applicable.

TABLE 14FOREIGN DIRECT INVESTMENT BY SECTOR

2.3 External Debt

During the past years, Bolivia has benefited of a millionaire debt relief of more than US$3500 million. This has been critical in terms of external balance sustainability, and allowedthe allocation of those resources to internal purposes. However, debt is increasing againeven though the fiscal position of the country has been favorable.

The balance in public external debt has increased during the first half of the year. In June2010, total debt; short, medium and long term amounted to US$ 2757.8 million, 7.7

percent higher than the result of June 2009. This represents an additional liability of US$197.2 million between these two periods (see Table 15).

73.3 percent of total debt is accrued to multilateral sources, the most important being CAFwith 38.3 percent of the total. Next in order of importance comes the IDB (18.9 percent ofthe total) and the World Bank (11.4 percent). Multilateral debt accounts for the bulk of theincrease of public sector external liabilities during this period, having increased by US$171.3 million.

Bilateral debt, on the other hand, was reduced by US$ 24.6 million between June 2009and June 2010 reflecting a reduction of Brazil's debt in US$ 12.7 million and Spain in US$

84.5 million. In contrast, external debt with the government of Venezuela continued to rise,increasing in US$ 77.6 million. Currently, liabilities with Venezuela accounts for 12.0percent of total debt. That is, US$ 329.9 million.


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(At June of each year)Value


Change (p)2009-2010

CREDITOR 2008 2009 (p) 2010 (p) 2009 (p) 2010 (p)Absolute



SHORT TERM - 74.2 124.7 2.9 4.5 50.5 68.1FMI n.a. n.a.

MULTILATERAL 1,748.3 1,849.2 2,020.5 72.2 73.3 171.3 9.3

CAF 877.8 952.8 1,056.4 37.2 38.3 103.6 10.9

BID 452.6 467.4 520.3 18.3 18.9 52.9 11.3Banco Mundial 282.4 295.3 313.5 11.5 11.4 18.2 6.2

Otros 135.5 133.7 130.3 5.2 4.7 (3.4) (2.5)

BILATERAL 509.6 637.2 612.6 24.9 22.2 (24.6) (3.9)

Venezuela 99.5 252.3 329.9 9.9 12.0 77.6 30.8

Brasil 120.4 107.7 95.0 4.2 3.4 (12.7) (11.8)China 78.4 79.4 79.8 3.1 2.9 0.4 0.5Alemania 55.1 56.5 49.6 2.2 1.8 (6.9) (12.2)Coreal del Sur 19.1 17.5 19.5 0.7 0.7 2.0 11.4

Otros 137.1 123.8 38.8 4.8 1.4 (85.0) (68.7)

TOTAL MEDIUM TERM 2,257.9 2,420.1 2,633.1 94.5 95.5 213.0 8.8

TOTAL SHORT, MEDIUMAND LONG TERM

2,257.9 2,560.6 2,757.8 100.0 100.0 197.2 7.7

SOURCE: Banco Centra de Boli via (www.bcb.gov.bo).

n.a.: not applicable.

(p) Preliminary.

TABLE 15BALANCE OF FOREIGN PUBLIC DEBT OF SHORT, MEDIUM AND LONG TERM BY CREDITOR

In regard to the external debt classified by public institutions as debtors, the Treasury(TGN) accounts for 75.9 at the end of June 2010, with a total liability of US$ 2092.4million; 5.4 percent above the level observed in June 2009. Next in order of importance isYPFB (the local state owned oil company) with US$ 371.8 million. During the period underreview, YPFB's total debt grew by US$ 118.2 million; this represents 13.5 percent of totalpublic debt. Another institution that has increased its debt is the Municipality of the La Pazcity, reaching in June 2010 US$ 72.4 million, 70.8 percent higher over the existing level inApril 2009 (see table 16).


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(At June of each year)Value


Change2009-2010

DEUDOR 2008 2009 (p) 2010 (p) 2009 (p) 2010 (p)Absolute



SHORT TERM 0.0 74.2 124.7 2.9 4.5 50.5 68.1

YPFB 0.0 74.2 124.7 2.9 4.5 50.5 68.1

MEDIUM AND LONG TERM 2,257.9 2,486.3 2,633.1 97.1 95.5 146.8 5.9

TGN 1,794.4 1,985.9 2,092.4 77.6 75.9 106.5 5.4YPFB 111.8 179.4 247.1 7.0 9.0 67.7 37.7Alcalda de La Paz 18.4 42.4 72.4 1.7 2.6 30.0 70.8FNDR 55.4 45.2 37.4 1.8 1.4 (7.8) (17.3)Prefectura de Potos 34.6 40.2 35.6 1.6 1.3 (4.6) (11.4)Banco de desarrollo 14.8 21.8 21.7 0.9 0.8 (0.1) (0.5)Prefectura de Chuquisaca 21.6 23.3 21.1 0.9 0.8 (2.2) (9.4)Prefectura de Tarija 22.7 22.6 20.2 0.9 0.7 (2.4) (10.6)SAGUAPAC - 17.8 17.8 0.7 0.6 0.0 0.0Prefectura de Santa Cruz 22.5 18.9 13.0 0.7 0.5 (5.9) (31.2)

Otros 161.7 88.8 54.4 3.5 2.0 (34.4) (38.7)

TOTAL SHORT, MEDIUM ANDLONG TERM

2,257.9 2,560.5 2,757.8 100.0 100.0 197.3 7.7

SOURCE: Generated based on data of the: Banco Central de Bolivia (www.bcb.gov.bo).(p) Preliminary.

TABLE 16BALANCE OF THE PUBLIC DEBT OF MEDIUM AND LONG TERM DEBTOR

2.4 Exchange Rate

Throughout 2010, the BCB has continued the policy of maintaining fixed the nominalexchange rate at Bs. 7.07 per U.S. Dollar. Moreover, the decline in the inflation rate hasreversed some of the significant real exchange rate appreciation observed between May2007 and February 2009, when the value of Boliviano increased in 26.0 percent. From thatdate on, the decline in inflation and the abandonment of the policy of nominal exchangerate appreciation allowed an increase in competitiveness of 15.5 percent (between

February and November 2009). Since Nove mber 2009 until May 2010 the real exchangerate again experienced a small reversal of 2.2 percent. All in all, in May 2010 this variableremains appreciated by 16.4 percent over the level of May 2007 (see Figure 10).


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FIGURE 10INDEX OF MULTILATERAL REAL EXCHANGE RATE

(May 2005 - May 2010)

113.3 113.3

96.9

83.9

94.7

80

85

90

95

100

105

110

115

120

M a y -

0 5

A u g - 0

5

N o v -

0 5

F e

b - 0

6

M a y -

0 6

A u g - 0

6

N o v -

0 6

F e

b - 0

7

M a y -

0 7

A u g - 0

7

N o v -

0 7

F e

b - 0

8

M a y -

0 8

A u g - 0

8

N o v -

0 8

F e

b - 0

9

M a y -

0 9

A u g - 0

9

N o v -

0 9

F e

b - 1

0

M a y -

1 0

I N D E X ( A U G U S T 2 0 0 3 =

1 0 0 )

SOURCE: Generated based on data of the: Banco Central de Bolivia.

The depreciation of the exchange rate was not homogeneous in relation to the tradingpartners. Most of the gain took place with Brazil (15.3 percent), a country to which Bolivianexports are concentrated in a single commodity (natural gas) sold within a fixed contractindependent of any concept of competitiveness. Also, the figures report a real depreciationwith Colombia (10.6 percent), Venezuela (8.1 percent), Chile (7.3 percent) and Korea (6.4percent). The tendency with Colombia and Venezuela is important because of the positiveimpact on exports of manufactured and agro-industrial goods. Finally, there are lower realdepreciations with Argentina (5.7 percent), Peru (5.2 percent), Japan (2.8 percent), China(1.3 percent) and U.S. (1.0 percent) (see Table 17).


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(At may of each year)

COUNTRYIndex of Real Exchange Rate

(August 2003 = 100)Growth Rate

(Percent)2008 (p) 2009 (p) 2010 (p) 2008-2009 2009-2010

Brasil 154.4 126.7 146.1 (18.0) 15.3Colombia 140.6 112.7 124.6 (19.8) 10.6Venezuela 116.9 141.0 152.5 20.6 8.1Chile 115.8 96.7 103.7 (16.5) 7.3Corea (sur) Repblica de 88.7 70.5 75.0 (20.5) 6.4Argentina 94.5 78.1 82.6 (17.4) 5.7Per 93.2 87.3 91.9 (6.3) 5.2Japn 73.9 76.3 78.4 3.2 2.8China 96.1 91.7 92.9 (4.5) 1.3Estados Unidos 77.7 72.5 73.2 (6.8) 1.0Zona del Euro 106.2 91.3 80.6 (14.0) (11.7)

SOURCE: Generated based on data of the: Banco Central de Bolivia (www.bcb.gov.bo).

(p) Preliminary.

TABLE 17REAL EXCHANGE RATE WITH THE MAIN COMMERCIAL PARTNERS


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II ECONOMIC POLICY

1. Fiscal management

The latest information available for public sector financial flows corresponds to December2009. Therefore, the analysis in this section refers to the end of that year. When morerecent data was found, the evaluation was complemented accordingly. However, it shouldbe noted that the delay in the release of fiscal information has become a regular problem,making difficult the analysis of the public sector.

DETAIL 2007 2008 2009 2008 2009 2008 2009

TOTAL REVENUE 33,739.3 39,513.6 38,100.6 100.0 100.0 17.1 (3.6)

CURRENT REVENUE 32,021.8 37,993.3 36,602.0 96.2 96.1 18.6 (3.7)

TAX REVENUE 17,010.5 21,634.9 20,843.8 54.8 54.7 27.2 (3.7)

Internal revenue 15,357.4 19,544.9 19,116.0 49.5 50.2 27.3 (2.2)

Customs revenue 1,111.1 1,401.7 1,178.9 3.5 3.1 26.2 (15.9)

Mining royalty 542.1 688.2 548.9 1.7 1.4 27.0 (20.2)

TAXES AND ROYALTIES ON HYDROCARBONS 11,648.9 12,779.0 11,955.3 32.3 31.4 9.7 (6.4)

VAT & IT / Direct Tax on Hydrocarbons - IDH 5,954.4 6,643.5 6,465.2 16.8 17.0 11.6 (2.7)

Especial Tax on Hydrocarbons - IEHD 2,382.8 2,529.9 1,794.0 6.4 4.7 6.2 (29.1)

Royalties 3,311.8 3,605.6 3,696.1 9.1 9.7 8.9 2.5

SALE: GOODS AND SERVICES 183.3 199.1 222.2 0.5 0.6 8.6 11.6

CURRENT TRANSFERS 1,047.3 1,029.2 1,299.3 2.6 3.4 (1.7) 26.3

from companies 240.4 61.1 71.2 0.2 0.2 (74.6) 16.4

from the private sector 806.8 968.0 1,228.2 2.4 3.2 20.0 26.9

OTHER CURRENT REVENUES 2,131.8 2,351.1 2,281.5 6.0 6.0 10.3 (3.0)

CAPITAL REVENUE 1,717.5 1,520.3 1,498.6 3.8 3.9 (11.5) (1.4)

TOTAL EXPENDITURES 31,406.4 39,525.3 39,494.7 100.0 100.0 25.9 (0.1)

CURRENT EXPENDITURES 19,304.7 26,336.6 24,888.5 66.6 63.0 36.4 (5.5)

PERSONNEL SERVICES 9,430.8 10,521.1 12,362.2 26.6 31.3 11.6 17.5

Severance payment 70.5 88.4 193.3 0.2 0.5 25.4 118.7

Veterans of war payments 169.3 166.3 169.3 0.4 0.4 (1.8) 1.8

Rest of wages and salaries 9,191.0 10,266.4 11,999.7 26.0 30.4 11.7 16.9

GOODS AND SERVICES 2,030.9 2,680.2 3,212.6 6.8 8.1 32.0 19.9

INTEREST ON EXTENAL DEBT 867.0 705.8 477.8 1.8 1.2 (18.6) (32.3)

INTEREST ON INTERNAL DEBT 451.6 223.2 1,418.6 0.6 3.6 (50.6) 535.5

CURRENT TRANSFERS 5,627.2 11,909.4 9,264.7 30.1 23.5 111.6 (22.2)

Emission of debt c ertificates to public sector 589.8 4,194.2 1,476.6 10.6 3.7 611.1 (64.8)

Emission of debt certificates to private sector 871.4 791.4 733.9 2.0 1.9 (9.2) (7.3)

Other Transfers to enterprises 7.8 391.9 285.4 1.0 0.7 4,922.4 (27.2)

Retired 3,487.1 3,800.3 4,313.5 9.6 10.9 9.0 13.5

Other Transfers to private sector 671.0 2,731.6 2,455.4 6.9 6.2 307.1 (10.1)

OTHER CURRENT EXPENDITURES 856.5 1,005.7 1,254.0 2.5 3.2 17.4 24.7

NON IDENTIFIED EXPENDITURES 40.8 (708.8) (3,101.4) (1.8) (7.9) (1,839.0) 337.6

CAPITAL EXPENDITURES 12,101.7 13,188.7 14,606.2 33.4 37.0 9.0 10.7

CURRENT OVERALL BALANCE 12,717.2 11,656.6 11,713.5 29.5 29.7 (8.3) 0.5

OVERALL FISCAL BALANCE 2,332.9 (11.8) (1,394.1) (0.0) (3.5) (100.5) 11,753.5

NET FINANCING (2,332.9) 11.8 1,394.1 100.0 100.0 (100.5) 11,753.3

NET FOREIGN CREDIT 637.6 1,166.1 1,881.9 9,914.7 135.0 82.9 61.4

NET DOMESTIC CREDIT (2,970.6) (1,154.4) (487.8) (9,814.7) (35.0) (61.1) (57.7)

SOURCE: Generated with data of the Ministerio de Economa y Finanzas Pblicas (www.economiayfinanzas.gob.bo)

TABLE 18GENERAL GOVERMENT: G ENERAL FISCAL BALANCE

In percent of totalrevenue, unless otherwise

indicated

Percent change fromprevious period

Value(Millon of Bolivianos)

(Anual)


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1.1 General Government

The General Government (GG) includes the Central Government, Prefectures (todayGovernances), and Municipalities. For the 2009 fiscal year, GG reported a deficit of Bs.1,394.1 million, equivalent to 1.1 percent of GDP. This result contrasts with the surplus of2006, 2007 and the 2008 GG equilibrium. The deficit is explained by a reduction inrevenues, while expenditures remained virtually constant (see table 18).

Revenues fell in Bs. 1,413.0 million (3.6 percent). This responds to a drop in oil taxes -6.4percent (Bs. -823.7 million), and the fall in general taxes (internal revenue, customsrevenue and mining royalties) in 3.7 percent (Bs. - 791.1 million). Oil tax revenues wentdown because of lower tax collections on oil and its derivatives (IEHD), which applies todomestic market sales (reduced revenues in Bs. 735.9 million). In contrast, the revenuesfrom the Direct Tax on Hydrocarbons (IDH) have fallen moderately (Bs. 178.4 million) androyalties rather have increased. The reduction in revenues reflects higher IEHD subsidy tooil consumed in the domestic market and the growing impact of this cost for the fiscalaccounts.

As mentioned, GG expenditures remained roughly constant. This reflects a reduction incurrent expenditures (Bs. 1,448.1 million), which was offset by an increase in capitaloutflows of a similar magnitude (Bs. 1,417.5 million). The decline in current expenditures isexplained by a significant reduction in current transfers to public institutions in Bs. 2,717.7million. It should be noted, however, that this reduction was partially offset by the increasein expenses for personal services Bs. 1,841.2 million. Expenditures on personal serviceshave augmented by 45.4 percent since 2006, showing more employment in the publicsector. The raise in government capital expenditure is linked to a greater value of publicinvestment, which in 2009 was 10.7 percent higher than 2008, with an accumulated 53.6percent increase since 2006.

All in all, the resulting deficit was financed primarily with debt, equivalent to Bs. 1881.9million. It should be noted the significant increase in the external debt of the GG in recentyears. In 2006 GG external debt flows were negative; there was a net repayment insteadof a net increase, as it is today.

1.2 State Owned Companies

Bolivia has decided to move back to an economic model in which the State is a strongplayer in production markets. Accordingly, at least 13 private companies have beennationalized in areas such as Oil (up and down stream), Telecommunications, Mining,Cement, Gas, Electricity and others. But also, a large number of new state ownedcompanies are being created every year in areas such as food distribution, paper, fruitprocessing, diary, radio stations, newspapers and others.

State owned companies are increasing in number; however oil (YPFB) is the mostimportant and dominates the figures in this category of fiscal data. Current revenues ofpublic enterprises fell in Bs. 4.1324 million (-12.0 percent). This drop is mainly due to thecontraction of export revenues of oil Bs. 3322.0 million (-22.4 percent). This could beregarded as the effect of the international crisis on the fiscal sector. However, revenues


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from oil sales in the domestic market rose in Bs. 2314.6 million (20.1 percent), reflectinghigher fuel consumption locally. Although this is an accounting entry, a significant portionof this fuel is imported at international prices and sold in the domestic market at asubsidized price, thus represents a greater weight for the fiscal accounts (see Table 19).


DETAIL 2007 2008 2009 2008 2009 2008 2009

TOTAL REVENUE 18,251.1 34,310.3 30,177.9 100.0 100.0 88.0 (12.0)

CURRENT REVENUE 18,109.9 33,959.1 29,848.7 99.0 98.9 87.5 (12.1)

SALE OF HYDROCARBONS 13,235.3 26,332.8 25,325.3 76.7 83.9 99.0 (3.8)

Domestic Market 8,380.6 11,520.6 13,835.2 33.6 45.8 37.5 20.1

Foreign Market 4,854.7 14,812.1 11,490.1 43.2 38.1 205.1 (22.4)

OTHER COMPANIES 1,803.8 2,390.3 2,335.7 7.0 7.7 32.5 (2.3)

CURRENT TRANSFERS 601.7 4,616.2 1,795.9 13.5 6.0 667.2 (61.1)

From Public Sector 597.6 4,586.1 1,762.0 13.4 5.8 667.4 (61.6)From Private Sector 4.1 30.1 34.0 0.1 0.1 630.1 12.9

OTHER CURRENT REVENUE 2,469.0 619.8 391.8 1.8 1.3 (74.9) (36.8)

Other revenues 2,469.0 619.8 391.8 1.8 1.3 (74.9) (36.8)

CAPITAL REVENUE 141.2 351.2 329.2 1.0 1.1 148.6 (6.3)

TOTAL EXPENDITURE 18,798.7 30,382.3 28,674.6 88.6 95.0 61.6 (5.6)

CURRENT EXPENDITURE 17,732.6 27,994.0 27,265.1 81.6 90.3 57.9 (2.6)

PERSONNEL SERVICES 552.8 806.5 842.8 2.4 2.8 45.9 4.5

GOODS AND SERVICES 10,340.6 15,670.6 11,658.3 45.7 38.6 51.5 (25.6)

INTEREST OF EXTENAL DEBT 18.6 92.8 71.2 0.3 0.2 398.1 (23.3)

INTEREST OF INTERNAL DEBT 8.7 7.9 11.7 0.0 0.0 (9.5) 49.0

PAGO DE TRIBUTOS 3,873.8 6,892.5 7,600.4 20.1 25.2 77.9 10.3

Direct Tax on Hydrocarbons - IDH 3,664.2 6,643.5 6,465.2 19.4 21.4 81.3 (2.7)

Contributions 190.0 179.4 1,135.2 0.5 3.8 (5.6) 532.9Customs revenue 19.6 69.6 0.0 0.2 0.0 255.4 (100.0)

ROYALTY AND TAX ON HYDROCARBONS 2,222.4 3,555.0 3,642.8 10.4 12.1 60.0 2.5

DOMESTIC MARKET 2,222.4 3,555.0 3,642.8 10.4 12.1 60.0 2.5

CURRENT TRANSFERS 622.9 90.2 212.7 0.3 0.7 (85.5) 135.7

to public sector 240.4 61.1 71.2 0.2 0.2 (74.6) 16.4

to private sector 382.5 29.1 141.6 0.1 0.5 (92.4) 386.7

OTHER CURRENT EXPENDITURE 67.6 77.1 41.1 0.2 0.1 14.1 (46.7)

NON IDENTIFIED EXPENDITURES 25.2 801.3 3,184.0 2.3 10.6 3,084.7 297.3

CAPITAL EXPENDITURES 1,066.1 2,388.3 1,409.5 7.0 4.7 124.0 (41.0)

CURRENT OVERALL BALANCE 377.3 5,965.1 2,583.7 17.4 8.6 1,481.0 (56.7)

OVERALL FISCAL BALANCE (547.6) 3,928.0 1,503.4 11.4 5.0 (817.3) (61.7)

NET FINANCING 547.6 (3,928.0) (1,503.4) (11.4) (5.0) (817.3) (61.7)

FOREIGN NET FINANCING 425.4 445.5 (604.7) 1.3 (2.0) 4.7 (235.7)

DOMESTIC NET FINANCING 122.2 (4,373.5) (898.7) (12.7) (3.0) (3,679.5) (79.5)


TABLE 19COMPANIES: GENERAL FISCAL BALANCE

(Anual)In percent of totalrevenue, unless

otherwise indicated


Other important revenue reductions in public enterprises are explained by lower transfersfrom the government in Bs. 2820.3 million (61.1 percent). These transfers were primarilydirected to YPFB.


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Current expenditures of state enterprises fell in Bs. 729.0 million (2.6 percent), a less thanproportional reduction when compared to the decrease in total revenue. The largest dropin total expenditures corresponds to a lower acquisition of goods and services, whichdeclined in Bs. 4012.3 million (-25.6 percent). On the other hand, expenses increased topay taxes (Bs. 707.9 million), royalties, and specific taxes on hydrocarbons (Bs. 87.7million). Also, they raised to pay transfers to the private sector in Bs. 122.5 million, anamount assumed by YPFB for the payment of a social transfer under the name of RentaDignidad, former BonoSol. Finally, there is a significant increase in non identifiedexpenditures (Bs. 2382.7 million).

The overall result of public enterprises was a surplus reduction from Bs. 3.928 million toBs. 1.503 million, -61.7 percent. Most of this surplus corresponds to that generated byYPFB (Bs.1864.9 million). Below the line, the balance was financed with a net repaymentof foreign loans, floating debt and other liabilities. It should be noted, however, that statecompanies have used part of their deposits at the Banco Central de Bolivia (BCB). Incontrast YPFB has accumulated deposits at the BCB.

1.3 Non financial public sector

The following table shows the flow of the non-financial public sector for the years 2007-2009. As noted in the 2009 Milenio Report, even though the public sector has maintaineda surplus in 2009, this was rather small, so the situation for the past year was practically inbalance. This contrasts with results for the previous two years, which showed significantsurpluses. The result of the Nonfinancial Public Sector (NFPS) is dominated by the surplusof public enterprises (YPFB), which compensates for the general government deficit. Thus,oil revenue is being consumed by the general government since the public sector hasspared no oil revenues in 2009. This marks the fact that oil revenues have beencompletely absorbed by the budget. Although this creates a situation of fiscal equilibrium, it

also reflects a vulnerable scenario to any reduction on oil price and hydrocarbons income.Because there are no reserves, a reduction in oil revenues might imply adjustments inspending or public investment.

The consumption of all oil revenue does not look like the best policy, especially in front ofprice volatility and the uncertainty in demand for gas exports. This strategy is, at least,risky. While there are some savings generated in previous years, it is not clear they areenough to cushion future declines in revenues from the hydrocarbons sector. It could beargued that part of the increase in public spending -in recent years- had the purpose toexpand public investment. But the question remains about the efficiency of publicinvestment. Public works are largely related to infrastructure with no direct return for thepublic sector. More importantly, public investment will generate higher expenditurerequirements for maintenance (recurrent expenditure) and its not clear if forecasts of thefiscal balance include these incremental costs.


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In percent of totalrevenue, unless

otherwise indicated


DETAIL 2007 2008 2009 2008 2009 2008 2009

TOTAL REVENUE AND GRANTS 44,929.7 58,394.5 54,824.1 100.0 100.0 30.0 (6.1)

CURRENT REVENUE 43,197.4 56,857.6 53,374.5 97.4 97.4 31.6 (6.1)

TAX REVENUE 16,800.9 21,385.9 19,708.5 36.6 35.9 27.3 (7.8)

Internal revenue 15,167.4 19,365.6 17,980.7 33.2 32.8 27.7 (7.2)

Customs revenue 1,091.5 1,332.1 1,178.9 2.3 2.2 22.0 (11.5)

Mining royalty 542.1 688.2 548.9 1.2 1.0 27.0 (20.2)

HYDROCARBONS RELATED REVENUE 7,782.1 2,580.4 1,847.3 4.4 3.4 (66.8) (28.4)

Especial Tax on Hydrocarbons - IEHD 2,382.8 2,529.9 1,794.0 4.3 3.3 6.2 (29.1)

Royalty 3,109.1 50.5 53.3 0.1 0.1 (98.4) 5.5

HYDROCARBONS 13,235.3 26,332.8 25,325.3 45.1 46.2 99.0 (3.8)

Domestic Market 8,380.6 11,520.6 13,835.2 19.7 25.2 37.5 20.1

Foreign Market 4,854.7 14,812.1 11,490.1 25.4 21.0 205.1 (22.4)

OTHER COMPANIES 1,803.8 2,390.3 2,335.7 4.1 4.3 32.5 (2.3)

CURRENT TRANSFERS 811.0 998.1 1,262.1 1.7 2.3 23.1 26.5

OTHER CURRENT REVENUES 2,764.3 3,170.0 2,895.5 5.4 5.3 14.7 (8.7)

CAPITAL REVENUE 1,732.3 1,536.9 1,449.6 2.6 2.6 (11.3) (5.7)

TOTAL EXPENDITURE 43,144.4 54,478.2 54,714.8 100.0 100.0 26.3 0.4

CURRENT EXPENDITURE 30,103.0 39,235.8 39,077.3 69.8 69.8 30.3 (0.4)

PERSONNEL SERVICES 9,983.6 11,327.6 13,205.0 27.5 23.1 13.5 16.6

Severance payment 82.6 101.4 215.9 0.3 0.2 22.8 112.9

Veterans of war 169.3 166.3 169.3 0.6 0.4 (1.8) 1.8

Rest of wages and salaries 9,731.7 11,059.9 12,819.8 26.6 22.6 13.6 15.9

GOODS AND SERVICES 12,371.5 18,350.8 14,870.9 19.8 28.7 48.3 (19.0)

INTEREST OF EXTENAL DEBT 885.6 798.6 549.0 3.0 2.1 (9.8) (31.3)

INTEREST OF INTERNAL DEBT 460.3 231.1 1,430.3 2.2 1.1 (49.8) 519.0

CURRENT TRANSFERS 5,412.0 7,352.3 7,644.3 15.9 12.5 35.9 4.0

Emission of debt certificates to private sector 871.4 791.4 733.9 3.4 2.0 (9.2) (7.3)

Retired 3,487.1 3,800.3 4,313.5 10.3 8.1 9.0 13.5

Other Transfers to private sector 1,053.5 2,760.7 2,596.9 2.1 2.4 162.0 (5.9)

OTHER CURRENT EXPENDITURES 924.1 1,082.8 1,295.1 1.8 2.1 17.2 19.6

NON IDENTIFIED EXPENDITURES 65.9 92.6 82.6 (0.4) 0.2 40.4 (10.7)

CAPITAL EXPENDITURES 13,041.4 15,242.4 15,637.5 30.2 30.2 16.9 2.6

CURRENT OVERALL BALANCE 13,094.5 17,621.8 14,297.2 37.7 30.4 34.6 (18.9)

OVERALL FISCAL BALANCE 1,785.4 3,916.2 109.2 13.0 4.1 119.4 (97.2)

NET FINANCING (1,785.4) (3,916.2) (109.2) 100.0 100.0 119.4 (97.2)

FOREIGN NET FINANCING 1,063.0 1,611.7 1,202.6 (41.2) (1,101.1) 51.6 (25.4)

Desembolsos 3,189.1 4,231.8 3,709.5 (108.1) (3,396.5) 32.7 (12.3)

Net repayment (2,129.7) (2,570.5) (2,505.0) 65.6 2,293.7 20.7 (2.5)

Others (Loans ENTEL)/Share (75.1) (49.6) (1.9) 1.3 1.8 (34.0) (96.1)

DOMESTIC NET FINANCING (2,848.4) (5,527.9) (1,311.8) 141.2 1,201.1 94.1 (76.3)

CENTRAL BANK (3,081.4) (6,052.0) (501.0) 154.5 458.7 96.4 (91.7)

FLOATING DEBT (8.3) 159.9 (250.1) (4.1) 229.0 (2,024.4) (256.4)

OTHERS 241.3 364.2 (560.7) (9.3) 513.4 50.9 (254.0)


TABLE 20NON-FINANCIAL PUBLIC SECTOR: GENERAL FISCAL BALANCE

(Anual)



39/108


1.4 Fiscal Evolution at the First semester 2010

The first half of this year reports a NFPS surplus of Bs. 1900 million 7. Probably this resultis due to improved export prices for hydrocarbons, and low execution of public sectorprojects. This shows the sensitivity of fiscal accounts to changes in price levels ofhydrocarbons.

While the NFPS has experienced a surplus, internal revenue collections have fallen 10.3percent. This reduction is explained in lower taxes (IDH, IEHD). In the latter case, this isdue to the increase in international oil prices, which means a lower collection of IEHD tokeep domestic prices constant (higher subsidy). The decrease in these taxes was higherthan the increase experienced by the domestic VAT, VAT on imports, and the tax oncorporate profits (see table 21).


In percent of total, unlessotherwise indicated

Change from 2009

DETALLE 2008 2009 2010 (p) 2009 2010 (p) (Millions of Bs.) (Percentages)

Value Added Tax IVA (Domestic Market) 1,801.8 1,609.5 2,052.1 10.8 15.3 442.6 27.5Value Added Tax IVA (Imports) 2,306.6 1,907.8 2,289.1 12.8 17.1 381.3 20.0Tax on Transactions 1,334.5 1,054.1 1,148.9 7.1 8.6 94.8 9.0Tax on corporate profits IUE 1,678.7 1,571.6 2,545.6 10.5 19.0 974.0 62.0Tax on specific consumption ICE (Domestic Market) 351.6 394.0 484.1 2.6 3.6 90.1 22.9Complementary regime-IVA 112.6 135.1 127.3 0.9 0.9 (7.8) (5.8)Tax on Financial Transactions ITF 173.9 157.5 168.9 1.1 1.3 11.4 7.2Direct Tax on Hydrocarbons IDH 2,617.5 3,791.9 2,813.5 25.4 21.0 (978.4) (25.8)Especiphic Tax on Hydrocarbons and derivatives IEHD 1,273.2 1,117.4 404.8 7.5 3.0 (712.6) (63.8)Other taxes 1,698.2 3,197.8 1,370.4 21.4 10.2 (1,827.4) (57.1)

TOTAL REVENUES 13,348.6 14,936.7 13,404.7 100.0 100.0 (1,532.0) (10.3)

SOURCE: Servicio de Impuestos Nacionales (www.impuestos.gov.bo).(p) preliminar

(January - June of each year)

TABLE 21INTERNAL REVENUES

Figures for public sector borrowing for the semester of this year appear in the followingtable:

In percent of total Growth rate

DETAIL 2007 2008 2009 2010 2008 2009 2010 2008 2009 2010

Domestic Debt 3,037.3 4,976.7 5,469.9 4,394.5 68.8 68.8 62.5 63.9 9.9 (19.7)Foreign Debt 2,055.9 2,257.9 2,482.9 2,633.1 31.2 31.2 37.5 9.8 10.0 6.1

TOTAL DEBT 5,093.2 7,234.6 7,952.8 7,027.6 100.0 100.0 100.0 42.0 9.9 (11.6)

SOURCE: Generated with data of the Banco Central d e Bolivia (www.bcb.gov.bo).

Value(Millon of U.S. Dollars)

TABLE 22PUBLIC DEBT STOCK

(June of each year)

Public debt includes the liabilities of the NFPS and that of BCB.

Fmilenio Milenio Report 29

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