Country Report Bolivia July 2008

Outlook for 2008-09

• Political tensions will remain high ahead of a recall vote on the national executive and departmental governors on August 10th although we expect Mr Morales to be confirmed in office.
• Renewed dialogue between the opposition and government over the alignment of proposed constitutional reforms with regional autonomy is unlikely before national recall voting.
• The government is expected to continue to use methods that have been criticised in the past as undemocratic in order to progress with its agenda.
• 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 19.1% in 2008 (previously 14.1%), before declining to 11.5% in 2009. Risks to this forecast are weighted to the upside.
• Strong consumption growth and a surge in commodity exports have led us to revise our forecast for real GDP growth to 5.6% (previously 4.4%) in 2008 before slowing to 4% in 2009.
• Based on a strong first-quarter trade surplus, the Economist Intelligence Unit expects the current-account surplus to reach 10.2% of GDP in 2008 and 8.5% of GDP in 2009.

Monthly review

• Relations with the US government reached a new low when demonstrators surrounded the US embassy, throwing sticks of dynamite inside. The US ambassador was briefly recalled to the US to discuss security issues.
• Political tensions have become more pronounced and incidences of violence have increased as government and opposition supporters clashed in the run-up to regional autonomy referenda and the national recall vote.
• The government has announced plans to focus on enhancing state production through investment in new state companies and further nationalisations, including electricity generation and transport sectors.
• Government officials have revealed that real GDP growth has outperformed expectations in the year to June and now expect GDP growth in the range of 6%-6.5% in the first half of 2008 (preliminary first-quarter growth was 6.1%).
• Preliminary balance of payments figures for first-quarter 2008 show a strong increase in the current-account surplus (84.8% year on year) driven by a burgeoning trade surplus that reached US$400m.