Country Report Bolivia August 2008

Outlook for 2008-09

• Political tensions will remain high surrounding the recall vote on the national executive and departmental governors on August 10th 2008.
• We expect Mr Morales to be confirmed in office, but after 30 months of political wrangling, compromise between the MAS and the opposition is unlikely in the short term.
• As both sides continue to disagree over the alignment of proposed constitutional reforms with regional autonomy, there is a high risk that the escalation of tensions will lead to increasing civil disorder and social conflict.
• We forecast real GDP growth to reach 5.6% in 2008, driven mainly by still strong private consumption growth and a surge in commodity exports, before slowing to 4% in 2009 as inflationary pressures and a lack of investment takeeffect.
• Stronger than expected revenue, coupled with the government's weak implementation capacity, will keep the fiscal accounts in surplus in 2008 before recording a small deficit in 2009.
• Higher commodity prices and an expansionary fiscal policy will drive year-end inflation to above 19% in 2008 before declining to 11.9% in 2009. Risks to this forecast are weighted to the upside.
• Based on a strong first-quarter trade surplus, we expect the current-account surplus to reach 10.2% of GDP in 2008 and 8.4% of GDP in 2009. The surpluses will support currency appreciation in 2008.

Monthly review

• Campaigning by supporters of the government and the regional prefects has resulted in a rising number of violent incidents between groups of rival supporters in the run-up to the recall vote.
• Various legal blocking manoeuvres have been tried to stop the electoral court holding the recall ballot. The opposition has argued that the voting rules should be revised and the vote postponed.
• In late July the government submitted a pension reform bill to Congress that, if approved, would effectively return the management of the personal pension fund savings accounts to state control.
• GDP growth accelerated strongly in the first quarter, expanding by 6.07% year on year on the back of strong export growth (particularly from mining) and private consumption growth of 4.4%.
• The annual increase in the consumer price index (CPI) reached a new peak of 17.3% in June. Despite the uncertainty, bank deposits hit a record high in July.

Source: Country Report