Growth engine falters when needed most
By SERGIO HELD in Bogota and DIEGO LAJE in Buenos Aires
China Daily

Members of the security forces walk during clashes with supporters of former Bolivian president Evo Morales in La Paz, Bolivia, on Nov 13, 2019. (Photo: Agenices)

With gas boom fading, new Bolivian govt faces tough task as unrest persists

Bolivia's economic outlook took a turn for the worse this week when a political crisis delivered yet more drama.

Former president Evo Morales took up asylum in Mexico and Senator Jeanine Anez Chavez, a leading lawmaker, assumed the presidency. The courts backed her move.

With a leadership vacuum seemingly filled, but unrest continuing, a new government will have to grapple with the economic fallout of the crisis for this country of 11 million. Last year, the economy grew 4.2 percent, mostly on the back of natural gas exports.

The political crisis has stirred up doubts about the country's future growth prospects and how it will service almost $15 billion in external debt, said Luis Angel Vasquez, a former Bolivian minister of justice and diplomat.

"So far, Bolivia has benefited from the boom in commodity prices, from the boom in gas exports to Argentina and Brazil, but that boom is coming to an end," said Vasquez.

"Gas reserves in Bolivia have been significantly reduced. No exploration has been done, and all of this has contributed to the fact that the gas revenues are becoming more and more depleted.

" (As a result,) Bolivia is turning to international credit with the idea of using that credit to solve the problems it has with the budget. That being the case, Bolivia's economic outlook and its export status are seriously threatened."

Vasquez said the boom began when Morales entered office-"from projects that had a maturity period of 20 to 30 years". They produced lucrative sales, especially for the Sao Paulo gas market in Brazil.

"This generated exceptional income in Bolivia, and it can be said that those 14 years have been the 14 years of greatest economic income growth in the history of Bolivia," he said.

But over the years the government dismissed any plans for natural gas exploration, the former minister said. "We have been losing export capacity, deposits are running low, and at the same time Brazil has been developing its own fields in much less expensive conditions than those offered by Bolivia," he said.

"The perspective is worrisome, as the gas sales contract with Brazil is about to expire, and the elaboration of a new contract is being conducted, but gas reserves must be certified (and we are running out of them)," Vasquez said.

For now, the country is managing to keep exports of natural gas stable.

"We have to have the police and army guarding the facilities, because in the end the national finances are the ones affected," said Alvaro Rios, managing partner at Gas Energy Latin America and a former minister of oil and gas, referring to the unrest in the country. "Bolivia has 55 million cubic meters of gas production. It can cover the summer demand, but not the winter demand.

"Bolivia's reserves and production are declining. There is exploration to come but that may not amount to much. Argentina has new gas. Brazil has new gas. We have moved from a sellers' market to a buyers' market in natural gas."

Gabriel Espinoza, an economist and adviser to the National Chamber of Commerce of Bolivia, said: "There is a rather complicated situation beyond the political situation, because now the government will be paralyzed for some time. Many of the reforms that were needed in the short term will not be possible, given that what is expected is only a transition government."

The country had a boom decade from the exploitation of gas, supported by exports of minerals and soybeans, but has now recorded five years of deficits, Espinoza told China Daily. This year, the fiscal deficit is expected to be at least 8 percent of GDP, or about $3.5 billion.

"The trade balance will be in deficit and, in addition to that, we must add the political problems of this last semester," Espinoza said.

He said a key issue facing Bolivia is the investment climate. "It is very likely that within the next six or eight months this climate will not improve and, rather the opposite, we will have serious problems in attracting investment," Espinoza said.

What's worse is that prices for raw materials have dropped and competition for natural gas exports has increased, particularly from Argentina, which recently discovered a massive deposit.

"Most of the deposits that have been exploited in Bolivia are reaching a level of depletion," Espinoza said.

"Bolivia is not able to sustain exports with increases in volumes-something that we did between 2008 and 2011-because the deposits have been depleted and they are increasingly unfeasible, economically speaking," he added.

"The future situation for Bolivia is quite complex. We need to attract private, national and foreign investment, but the macroeconomic climate is deteriorating and the climate to attract investment, and the institutional issues, are not the best we can achieve."

The writers are freelance journalists for China Daily.