S&P upgraded Bolivia´s rating. What does it mean?

The public sector enjoys the most important economic boom in decades due to the coincidence in high commodity prices and long term investments arranged in the past. That explains the unusual level of international reserves and even more the huge growth in fiscal revenues and expenditures.

The Bolivian government is wealthier than ever and it is understandable that its creditworthiness be upgraded. Some financial institutions have been taking advantage of this opportunity and offered loans at high interest rates and soft requirements on feasibility and legal procedures. At the same time, the Bolivian institutional framework weakened due to constitutional and legal reforms and social conflicts keep eroding governance, which also means a reduced managerial capability in the public sector. There is certainly a lot of money flowing into the country, but poor management does not guarantee its proper assignment. Most State-owned industrial projects are not working, large amounts of public money have been used to displace foreign capital without expanding the productive capacity (oil refineries, telecommunications), and partners selected on political grounds, like Jindal and PDVSA, have not made progress developing the iron or the oil industries, crucial for the government´s economic program.

The economy emerging from this boom does not differ from the historical: it is dependant and vulnerable, highly concentrated and unsustainable. The good ratings are based on natural resources, but current policies seem unable to transform them into productive capital to sustain economic growth and reduce poverty and inequality. Some indicators are improving, but they seem part of the monetary illusion, rather than outcomes of a new development process. A country of poor people can pay its debts, at least for a time.

Published in the Latin American Advisor, Inter American Dialogue

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