Country Report Bolivia September 2008

Outlook for 2008-09

• Political tensions will remain high after a big win for the president, Evo Morales, in the August recall vote as the four main opposition prefects in the resource-rich eastern lowlands were also confirmed by large margins.
• A national referendum on the new constitution—which was approved by the MAS, but without opposition support, at end-2007—has been called for December 7th and will probably be approved, given Mr Morales's popularity.
• 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 expect Bolivia's preferential trade access to the US under the ATPDEA to expire at end-2008 before it is renewed by a new administration in 2009.
• We forecast real GDP growth to reach 5.6% in 2008, driven mainly by private consumption growth and a surge in commodity exports, before slowing to 4% in 2009 as inflationary pressures and a lack of investment take effect.
• 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 16% in 2008 before declining to 11.1% in 2009.
• Based on a strong second-quarter trade surplus, we expect the current-account surplus to reach 10.4% of GDP in 2008 and 7.4% of GDP in 2009.

Monthly review

• Evo Morales was confirmed in office with slightly more than two-thirds of the vote in the August 10th recall referendum. Of the eight prefects subject to the recall, two were ousted, both outspoken critics of Mr Morales.
• The four strongest opposition prefects were reaffirmed and have since raised tensions by calling for hunger strikes and blockades to protest against the government's plans to redistribute hydrocarbon revenue.
• Data for January-June show that government spending growth has moderated (26% year on year), while revenue growth has increased sharply (40% year on year). The fiscal surplus stands at 5.4% of estimated GDP.
• Import growth has picked up in the first half of the year, growing by 46% year on year. Export earnings have remained strong on the back of high oil prices and increased mineral output and have grown by 55% year on year.
• After hitting a peak in July annual inflation fell slightly to 14.8% mainly owing to base effects.