VZCZCXRO4707
PP RUEHLMC
DE RUEHLP #0021/01 0041230
ZNR UUUUU ZZH
P 041230Z JAN 08
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 6113
INFO RUEHAC/AMEMBASSY ASUNCION 7481
RUEHBO/AMEMBASSY BOGOTA 4849
RUEHBR/AMEMBASSY BRASILIA 8763
RUEHBU/AMEMBASSY BUENOS AIRES 5985
RUEHCV/AMEMBASSY CARACAS 3194
RUEHGE/AMEMBASSY GEORGETOWN 0554
RUEHPE/AMEMBASSY LIMA 3409
RUEHMD/AMEMBASSY MADRID 3793
RUEHMN/AMEMBASSY MONTEVIDEO 5178
RUEHPO/AMEMBASSY PARAMARIBO 0239
RUEHQT/AMEMBASSY QUITO 5839
RUEHSG/AMEMBASSY SANTIAGO 0450
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHUB/USINT HAVANA 0856
RUEHLMC/MILLENNIUM CHALLENGE CORP

UNCLAS SECTION 01 OF 02 LA PAZ 000021 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV PREL EINV BL
SUBJECT: BOLIVIA'S MACRO-ECONOMIC SNAPSHOT 
 
REF: A. LA PAZ 3259 
     ¶B. LA PAZ 3150 
     ¶C. LA PAZ 3098 
 
 
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Summary 
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¶1.  (SBU)  Entering 2008, the Bolivian economy seems likely 
to suffer the consequences of recent political mismanagement. 
 In 2007, overall GDP growth slowed to between 3.8% and 4.2% 
(well below the 5.6% average for the region) and almost all 
sectors of the economy are showing the effects of several 
years of minimal investments.  High levels of liquidity in 
the economy benefited some industries (in particular 
construction), but also helped push inflation up nearly 
three-fold in 2007 to around 12%.  Bolivians are clearly 
worried about the economy; regardless, politics continues to 
dominate the thinking of the nation's leaders.  End Summary. 
 
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The Macro-Economy 
----------------- 
 
¶2.  (U)  Depending on whose figures are to be believed, 
Bolivia's growth rate fell to about 4% in 2007, down from 
4.6% in 2006.  (Note: The Economic Commission for Latin 
America and the Caribbean (CEPAL) estimates the GDP rate to 
be around 3.8%, while the Bolivian government puts the figure 
at 4.2%.  Taking either figure, Bolivian GDP growth was well 
below the regional average of 5.6%, ahead of only Mexico, 
Haiti, Nicaragua, and Ecuador. End note.) 
 
¶3.  (SBU)  Economic growth is particularly disappointing 
considering the high prices that Bolivia's primary exports 
enjoyed in international markets.  These should be boom times 
for the country; however, hostile policies toward business, 
unclear legal protection, and social unrest have all 
contributed to a negative investment rate of $120 million 
over 2007, the worst figure in the last 20 years.  This lack 
of investment is starting to show in production levels which 
have fallen across the hydrocarbon, mining, and agricultural 
sectors (growth rates continued to be positive only because 
of rising prices). 
 
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Inflation 
--------- 
 
¶4.  (U)  The most pressing immediate issue for the Bolivian 
people is inflation. The government reported an official rate 
of 11.73% for the year, but experts are disputing the 
figures.  Indeed, for Bolivians whose lunch costs have risen 
by 47% (Ref. A), the official numbers do not ring true. 
Excess liquidity in the economy was the primary culprit in 
¶2007.  Commodity prices and improved terms of trade, 
remittances (which now represent nearly 8% of GDP and 
increased some 25% in 2007), narco-trafficking, and debt 
forgiveness all contributed to increased inflationary 
pressure.  Surprising, considering the government's populist 
stance, increases in discretionary spending over 2007 were 
somewhat controlled (distributing around $100 million in 
Venezuelan checks helped), but new entitlement programs have 
recently institutionalized additional commitments and are 
likely to push inflation even higher.  For example, the new 
pension program increases spending in the area by over 12% in 
¶2008.  Even more ominous, government salaries are set to be 
renegotiated over the next few months.  In the past, these 
negotiations have been a catalyst for runaway inflation. 
Salaries currently represent 48% of the national budget. 
 
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Some Positives 
 
LA PAZ 00000021  002 OF 002 
 
 
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¶5.  (U)  Bolivia will register a budget surplus of around 4% 
in 2007, its highest ever.  Moreover, areas of the economy 
able to capitalize on the excess of liquidity did very well 
in 2007.  Leading the list was construction, which grew by 
12.5% through September.  It was followed by financial 
services (5.6%), transport (5.4%), manufacturing (5.2), 
electricity, gas, and water (5%), communications (4.8%), and 
commerce (4.4%), all of which will have grown at rates higher 
than that of the overall economy.  Additionally, the trade 
surplus will come in at around $1.3 billion for 2007, a new 
high (although through October exports grew at only 10.7%, 
while imports grew by 19.6%, which may indicate that large 
trade surpluses may not last).  According to the National 
Institute of Statistics (INE), the four largest export 
sectors in 2007 (through November) were hydrocarbons ($2 
billion), manufacturing ($1.2 billion), mining ($929 
million), and agriculture ($169 million). 
 
¶6.  (U)  Growth was particularly strong within the 
manufacturing sector where exports are set to rise by over 
11% for the year.  The United States remains Bolivia's 
largest market (55% of the total); however, fear is building 
that government actions may jeopardize ATPDEA trade benefits. 
 In 2006, exports under the threatened ATPDEA program 
amounted to $166 million and investors in the sector fear 
that they may be forced to move operations to neighboring 
countries to hold onto their export markets.  Indeed, 
informal reports are already making the newspapers of 
jewelry, textile, leather, and furniture manufacturers moving 
the finishing stages of their products to Chile or Peru in 
order to facilitate export to the United States. 
 
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Comment 
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¶7.  (SBU)  Looming over all areas of the private sector is 
the threat of greater state intervention as promised in the 
proposed new constitution.  Water, electrical, and 
telecommunication services are all threatened by a document 
that asserts exclusive state control over productive or 
commercial activities considered to be vital public services. 
 Moreover, extractive industries are also likely to need to 
renegotiate their activities in light of a more 
interventionist constitution.  It is not surprising 
therefore, that investment levels continue to be low leading 
into the new year.  Bolivia faces a high probability of 
electrical shortages (Ref. B) and an almost certain inability 
to meet its international gas contract obligations (Ref. C). 
Moreover, the possibility of further social unrest further 
clouds the economic horizon.  Economics has taken a back seat 
to politics in the Morales administration, and unfortunately 
even difficult times ahead are unlikely to change this focus. 
 
URS