Economic gaslighting

Official figures show gas exports are driving Bolivia's economic recovery, so why are local economists concerned?

According to government figures, the Bolivian economy is on the path to recovery as high commodity prices and growing natural gas exports to Brazil and Argentina delivered a positive trade balance of USD 453 million in the first quarter of 2021. The same dataset shows that economic activity in the country increased by 5.3% over the same period.

A former Vice Minister of Treasury and Public Credit was sceptical, “It’s true that in Q1 Bolivia experienced a positive trade balance, and this comes from rising commodity prices on the international market. But if you take a closer look and include the balance of payments as a whole, the balance was negative, which shows that Bolivia continues to lose dollars at an accelerated rate.”

A Bolivian economist agreed, “It is great news for Bolivia that the international prices of hydrocarbons and minerals are rising because it is the majority of our income. Unfortunately, Bolivia’s problems go further than this, there is no foreign investment coming in and the little foreign capital we have is leaving, there is a huge leak. In the balance of payments, the ‘errors and omissions’ line is very large: double what it was last year. The only explanation for this is the flight of foreign exchange and smuggling.”

“In the balance of payments, the ‘errors and omissions’ line is very large: double what it was last year. The only explanation for this is the flight of foreign exchange and smuggling.”

Economist, Bolivia

Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), the state-owned oil company, is making hay while the sun shines. In April 2021, it signed an uninterruptible natural gas sale and purchase contract with Petrobras for volumes up to 6.08 MMmcd at USD 6.5 per million, subject to the availability of Bolivian gas. This price was a 58.5% increase versus the price agreed in the 2020 between the same parties.

A former director of production at the National Hydrocarbons Agency (“ANH”), was concerned about the sustainability of this income stream, “Firstly, I believe these price rises will be temporary, it is unlikely to be part of a growing trend. Secondly, Bolivia’s reserves are in decline with only seven years remaining. It will not be possible to increase production without investment in exploration; I hope the government will take serious measures to reactivate investment in the sector. It is pointless to negotiate contracts when there is no gas to sell!”

“Firstly, I believe these [GAS] price rises will be temporary, it is unlikely to be part of a growing trend. Secondly, Bolivia’s reserves are in decline with only seven years remaining.”

Former Director of Production, National Hydrocarbons Agency

For its part, YPFB recently announced investments totalling USD 400 million in 20 exploration projects in the country but industry experts estimate that the country should aim to explore between 20 and 30 projects per year to meet Brazil’s increasing demands.

Regarding domestic demand and the current economic situation, the economist was well-placed to give us an update, “Despite government propaganda, the truth is that there has been no reactivation of domestic demand. Credits and deposits are down, arrears are high. The revenue and profits of the 65 largest companies, with publicly available information, were down by 50% last year. There is no liquidity and the people are feeling it, there are ‘For Sale’ and ‘For Rent’ signs everywhere. So, while inflation is not a problem here, unemployment is and given the high levels of informal work, this is difficult to quantify.”

“Despite government propaganda, the truth is that there has been no reactivation of domestic demand. Credits and deposits are down, arrears are high.”

Economist, Bolivia

The former Vice Minister had an equally bleak outlook, “President Arce needs to find USD 3 billion before the end of the year. Selling more gas is good to alleviate the external deficit but if he doesn’t find those USD 3 billion. he will have to devalue. I can assure you that before devaluing, he will resign as President, just as he did when he was a minister. Evo [Morales] will make his life impossible if things get difficult.”

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