Bolivia Economic Structure

The Latin American countries, unlike their global counterparts, showed more resilience to the economic crisis of 2008-2009. Bolivia has weathered the storm particularly well in 2009, suffering minimal economic damages. This can be attributed to the high accumulation of reserves during the commodities boom. The fiscal policies of Bolivia were geared towards better management of its currency exchange rates and high frequency of readjustments.[br]

The Latin American countries, unlike their global counterparts, showed more resilience to the economic crisis of 2008-2009. Bolivia has weathered the storm particularly well in 2009, suffering minimal economic damages. This can be attributed to the high accumulation of reserves during the commodities boom. The fiscal policies of Bolivia were geared towards better management of its currency exchange rates and high frequency of readjustments.[br]

 

Bolivia’s resilience dates back to the Tango crisis of 2001, when fixed exchange rates fell out of favor in South America. Bolivia did not follow the rate and continued with its fixed exchange rate of 1985. During the Latin American crisis of 1999-2003, the Bolivian Central Bank depreciated the currency, which left Bolivia relatively unscathed in the crisis.

 

During the commodities boom, Bolivia accumulated an enormous amount of international reserves, up to 41% of its GDP, more than twice than that of Brazil. Due to low frequency of foreign based investments and lower risks, the fiscal policy played a significant role in shaping the public sector enterprises. The public sector generated tremendous revenues and was a viable source of financing.

 

Bolivia Economic Structure: The Financial Crisis of 2008-2009

Bolivia in 2010 has felt the pangs of the meltdown, but is relatively better-off than its South American counterparts. Since the collapse in natural gas and commodity prices, the Bolivian Central Bank has lost a fraction of its stock of international reserves. Surprisingly, deposits in the Bolivian banking institutions continued to grow despite the policies of the Morales administration. According to financial experts, the fiscal policies in Bolivia helped in developing its economy by adapting to a fixed exchange framework, instead of a floating exchange framework. Although the collapse in commodity prices had impacted the government budget, it is confident that it can manage the fiscal gap by leveraging the country’s savings or borrowing from the domestic market.[br]

 

The Bolivian fiscal policies have prevented the country from going into a major economic shock. Bolivia has enough reasons to be optimistic about its medium term growth outlook and has demonstrated to emerging economies how to withstand a major crisis.