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Bolivia: State Most Important

The most important actor in the economy is the state, Bolivia's Minister of Economy & Public Finance says.


NEW YORK -- Bolivia made the trip into the Heart of American Capitalism last week, with the maiden trip to New York of Luis Arce Catacora in his capacity as Minister of Economy and Public Finance.  One of President Evo Morales’ first cabinet selections following his election in 2005, Arce was visiting New York for the first time since that appointment.

At an event here organized by the Americas Society, and co-sponsored by The World Bank, the architect of Bolivia’s economic model said he was eager to show the results of Bolivia’s economic progress and that his government "was not trying to kick the private sector out of Bolivia."

While calling for private investment in key investment areas identified by the government, Arce was clear in his view that "we don’t believe in efficient markets and we do believe in intervention. The state is not only an actor but will be an investor, benefactor and banker to do what it needs to fix the economy from the free market." From the outset in his presentation, Minister Arce contrasted what he termed the "neoliberal" model and the one adopted in Bolivia: "The Economic Social Communitarian and Productive Model."

"We don’t want to nationalize everything", he continued, "just strategic areas – those areas that belonged to the state before the neoliberals came to Bolivia.” He was not, he said, interested in nationalizing assets like houses or cars. However, “the most important actor in the economy is the state."

Bolivia’s economic results have been impressive, as per his presentation:

  • GDP growth in 2009 was 3.4 percent. (The International Monetary Fund says it was 3.3 percent, but that would still be the second-highest in Latin America, according to a Latin Business Chronicle analysis).
  • GDP per capita has risen from U.S. $1,010 just before the election to U.S.$1,683 last year.
  • Foreign exchange reserves have risen to $8.5 billion, a figure that represents almost half of Bolivia’s GDP.  

Meanwhile, inflation was under one percent for the past two years, Arce said. Bolivian authorities measure inflation by year-end figures, which stood at 0.26 percent. However, the average inflation was 3.5 percent, according to the IMF.

The country’s macro-economic stability implied by these statistics he saw as a “social asset” now, and was particularly keen to point out that the stimulation of domestic demand had driven growth, not just export-led growth. He pointed to the elections held in Bolivia last year where the Morales regime, he claimed, that received almost two-thirds of the vote, indicating the government’s popularity.

Outlining the government’s five year economic objectives from 2010 – 2015, Arce described an "aggressive" investment program particularly focused on:

  • Hydrocarbons sector
  • Mining (especially lithium of which Bolivia is believed to carry nearly a half of the world’s known reserves)
  • Hydroelectric energy projects
  • Road construction, railways and riverways for national and regional integration
  • Agribusiness  

Arce conceded that in addition to government funding, multilateral support and bond issuance, Bolivia would still need foreign direct investment to reach its growth goals. He repeated that the country’s Constitution talked to “freedom of enterprise” and protection of the private investor. However, in the key areas of hydrocarbons, mining and electricity generation, where income and employment were critical to Bolivia, "the State has to redistribute assets and income."

He said he believe strongly that Bolivia needed to develop value-added industries to leverage off its natural resources: for example, developing hydrocarbon products.

Perhaps more controversially in the agribusiness sector, Arce said he was highly in favor of industrializing coca production. Of the fourteen major properties of coca, he claimed, only one was present in cocaine. The others needed exploiting and there was already promising research that coca could help in the fight against tooth decay.

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