Business prospects improve in Bolivia's mining and hydrocarbons industries

Business America, May 6, 1991 by Kurt Wrobel, Laura Zeiger

The economic outlook for the Bolivian economy remains positive as the country continues economic policies aimed at controlling inflation and reducing the federal deficit.

Bolivia's balance of payments has shown increasing strength in the last two years, and the trade balance has improved dramatically-to over $200 million in 1990. Exports, fueled largely by Bolivia's hydrocarbons and mining sectors, increased from $815 million in 1989 to $918 million in 1990. Non-traditional exports (agricultural products, leather) grew dramatically by 40 percent, to $276 million. Economic growth continued for the fourth consecutive year, with 1990 GDP increasing by an estimated 2.6 percent. Reforms introduced since 1985 have succeeded in eliminating hyperinflation, and the country, after years of military rule and a reputation for political unrest, has entered its sixth year of civilian rule.

The Bolivian government has emphasized debt management as a key element of its international relations. In December 1989, Bolivia and Argentina concluded agreements which swapped their bilateral debt. In early 1990, Bolivian negotiators concluded a debt rescheduling/ buy-back agreement with Brazil. These two actions lowered official debt by more than $900 million. Bolivia enjoys excellent relations with international donors and lenders, and multilateral development banks. The Inter-American Development Bank (IDB) recently agreed to $900 million in loans through 1993, and the World Bank has been steadily increasing its exposure. In October 1990, the IMF approved another $30 million tranche of an Enhanced Structural Adjustment Facility loan for Bolivia. Bolivia was the first developing country to successfully buy-back most of its commercial debt.

The recovery of the Bolivian economy can be attributed largely to the economic reforms first implemented in 1985 under the Paz Estenssoro administration. These reforms included: * Abolishing foreign exchange restrictions. * Eliminating state subsidies and prices. * Liberalizing bank deposits and commercial lending rates and restoring dollar-denominated accounts. * Lowering tariff rates and removing most import restrictions. * Introducing a debt buy-back and debt/swap program.

The Paz Zamora administration, which took office in August 1989, remains committed to an open market economy and further liberalization of the trade and investment regimes. In January 1990, President Paz announced a new economic reactivization program which emphasized the need to develop export industries but maintained the conservative fiscal policies in place since 1985.

Tariff rates were reduced further, to 5 percent on capital goods and 10 percent on all other goods (formerly 10 and 17 percent, respectively). Import licenses are only required for soybeans, sugar, and national security items. In addition, Bolivia and the United States signed a Framework Agreement to liberalize bilateral trade and investment, and in September 1990, Bolivia became an official member of the GATT.

The Bolivian government's efforts to improve the investment climate include: * Passage of a new investment law guaranteeing national treatment to foreign investors, unlimited remittances, free convertibility of currency, and international arbitration. * Enactment of a new hydrocarbons law allowing foreign investors participation in joint ventures along with investment tax incentives. * A revised mining law allowing foreign companies greater exploration rights within Bolivia. * Announcement of a program to privatize 140 public enterprises beginning this year. * A proposal to set up an investment promotion office with assistance from the Agency for International Development. * Negotiation of a Bilateral Investment Treaty with the United States. * An investment insurance agreement signed by Bolivia and the Overseas Private Investment Corporation (OPIC) providing for a full range of programs, including insurance, financing, and use of the organization's opportunity bank.

Although the general climate is positive, there are still problems facing potential investors. Bolivia is one of the poorest countries in the hemisphere, with a small domestic market and an underdeveloped infrastructure. The country relies primarily on air transportation to connect major cities, although a major project to rehabilitate the state-owned rail system has received financing from both bilateral and multilateral sources. Labor unions have posed problems in the past, and the Bolivian government has often proceeded slowly in negotiating contracts with interested U.S. investors. Nonetheless, if favorable economic trends continue and the Bolivian government remains faithful to trade and investment liberalization, substantial opportunities exist for U.S. companies, particularly in the mining and hydrocarbons sectors. The following synopses outline recent activities in these two sectors.

Mining. The mining sector continues to be Bolivia's strongest export sector, representing nearly 44 percent of exports in 1990; minerals exports increased approximately 1 percent to $407 million from 1989 to 1990. (Minerals exports were only $273 million in 1988.) Although the Bolivian mining industry is still dependent upon tin for much of its export earnings, it has begun to diversify its production. The volume of production grew by 11 percent for tin, 32 percent for lead, 36 percent for zinc, 13 percent for silver, 30 percent for cadmium, and 13 percent for gold.