Poor perfomance or poor imagination? (part 2)

As a former post showed, Bolivian CPI variation for 2007, according to ECLAC's information, was 11,9%. Hyperinflation is an unpleasant ghost in recent Bolivian collective memory. In second trimester of 1985, CPI variation reached 23.500%. The hyperinflation, produced by the irresponsible international debts contracted by Banzer’s authoritarian military government (1971 – 1978) and the “international debt crisis”, accompanied Bolivian economy since late 1970s. But it monumentally rose up in the even more irresponsible UDP government (1982 – 1985), the first of the recent democratic era (1982 – nowadays). To control it, the successor of UDP (MNR’s Victor Paz, 1985 - 1989), implemented what specialized literature calls “structural adjustment” (SA). The “adjustment” was introduced by the today infamous 21060 “supreme decree”, which liberalized and deregulated the economy

 to allow the market, and not the State, to define the prices of good and services.

In a couple of years, the new economic policy controlled the inflation rate variation. Thus, the average Bolivian consumers’ pocket was relieved. But the 21060 decree, in compass with other economic measures, also generated unemployment and “killed” the national mining industry, which was the main income source for Bolivian economy since the foundation of the Republic (1825). For those reasons, inflation (and the possible policies to control it) scares to death the average Bolivian citizen. In this context, a 11,9% CPI variation is taken as the worst economic indicator.

To understand and explain the 2007’s Bolivian inflation rate, however, it is fundamental and necessary to analyze it in the context of the actual, 

and not past, economic events. Two are the key factors that explain CPI variation in 2007:

• The meteorological event of “La Niña”, which razed broad agricultural and cattie territories

• Direct transference of income from public budget to citizens recently entitled with new social rights

“La Niña” contracted the supply; the transferences expanded the demand. Contraction of supply and expansion of demand, in any economy, generate price increases. The largest part of CPI variation (explained by La Niña) was not produced by economic public policy, but by conditions beyond government’s control. None of these condition were present during 2006, when the inflation rate was 4,9%. Evidently, a good government should react opportunely to avoid the consequences of this kind of factors. And there is solid evidence that proves that government was not fast enough to control the 

situation. But government itself did not produce the main factor of CPI variation, as was suggested by poor imagination’s propaganda (here and there). As far as we know, the “Andean indigenous” government still has not developed magical techniques to control the weather, although opposition’s poor imagination seems to believe the contrary.

Nevertheless, even with the slow reaction of the government, the inflation rate could have been worse. All Latin American economies affected by La Niña (see chart) witnessed a significant increment in their consumer prices. Bolivian 2007 CPI doubled 2006’s. The same did CPIs of Honduras, Guyana, Panama, and Guatemala. But Chile's and Peru's 2007 CPI —also affected by La Niña, among other economic events— tripled 2006’s.

Latin America and The Caribbean (7 countries): Consumers Prices

(Percentage variation December - December) a/

Source: ECLAC

a/ Twelve-month variation up to November for 2007

Analyzing this context, the Bolivian 2007 CPI increment was perfectly expectable and understandable, although not very much avoidable. Why then does poor imagination, instead of analyze the context and the causes of CPI variation, prefer to just blame economic policy ? This kind of conclusions is understandable from lay citizens, but it is not from economic annalists. Annalists are supposed to explain phenomena. But in Bolivia it seems like they have become another political actor, which, instead of “analyzing” and explain, are more interesting in producing the opposition’s arguments and ideological tools… very, very poor ideological tools. Don’t you think?

All points of view are welcome…

And don’t forget to visit:

INE for Bolivian official statistics (Spanish)

ECLAC for statistics and papers regarding Latin American and Bolivian socioeconomic issues (Spanish and English)

UDAPE for Bolivian public policies analysis (Spanish)

Poor performance or poor imagination? (part 1)

I

When ideas and arguments to make intelligent opposition do not come easily, poor imagination tries to show simple and perfectly expectable events, as if they were the worst curse. The interests of the Bolivian economic and political elites, who until very recent times, controlled economic and political systems in the country, are full of poor imagination. We can see this in recent attempts (here and there) to present the Bolivian economic performance for 2007 as an example of unsuccessful policy.

What is wrong with the Bolivian economic performance? Well, according to the poor imagination… everything! Let’s take a look at the “pitiful” performance(*):

• The GDP “just” grew 4% in 2007

• The Gross Fixed Capital Formation as percentage of GDP “just” increased from 13,5% in 2006 to 14,8% in 2007

• The foreign investment “just” grew from $us 237 millions in 2006 to $us 240 millions in 2007

• The exports of goods f.o.b. “just” increased from $us 3,863 million in 2006 to $us 4,211 million in 2007, and exports of services f.o.b. “just” from $us 434 millions to $us 473 millions

• The central government “foolishly” finished the year with a public finances’ 2,1% (as percentage of GDP) surplus.

• Finally, the key symbol of poor imagination: the Consumer Prices Index grew from 4,9% in 2006 to 11,9% in 2007.

Besides the inflation rate, why would the remaining positive numbers be so “disturbing”? The so-called “arguments” to support the thesis are, to say the less, funny, and show how far it is the anti-government propaganda to go in its goal of misrepresentation of reality. The poorest two arguments refer to GDP growth rate and Consumer Prices variation. This post analyses the “arguments” for GDP growth. A later post will examine the “arguments” for Consumer Prices.

II

The Bolivian economy grew by 4,0%, and some argue that there’s something wrong with it? Interesting. Why? Because —poor imagination says— Latin American economic performance was a bit higher than the Bolivian one. Since the Latin American economy as a whole grew by 5,6%, then the 4,0% of Bolivian performance is awful. That is an interesting conclusion. And very, very, very intelligent. Don’t you think?

Let’s take a look at the evolution of GDP growth rate in the last decade. From 1999 to 2003, the Bolivian economy grew annually at a rate near 2,0%. The consequences of the Asian crisis were intense. They affected, of course, the Latin American economies as a whole. However, in 2004 they returned to a path of positive figures. Since then, the Bolivian GDP started to grow at a 4,0% rate. None of the years after 2003, however, the Bolivian economy grew more than Latin American (see chart). Furthermore, in the last 25 years, the Bolivian economy growth was bigger than 5,0% only in three years (1991, 1997, and 1998). It seems that structural limitations affect economic growth in Bolivia, which does not depend on, nor is it able to overcome trough, a one-year set of public policies. Why, then, 2007’s economic policies are worse than those implemented years before? May be because before 2006 the Bolivian president was not “indigenous”? 4,0% of economic growth for a White Hispanic administration is alright, but it is not for Evo Morales?

Latin America and Bolivia: GDP annual growth rates, 1999 - 2007

(in constant 2000 $us dollars) a/

Source: ECLAC
a/ Preliminary figures for 2007

Beyond speculations, the 4,0%, of course, could be better. Social instability and some of the economic reforms implemented by the Morales administration generated uncertainty, which tended to scare foreign investment. Indeed, the foreign investment growth rate for 2007 was minor than 2006’s. But, in this scenario, the 4,0% growth rate means exactly the opposite to poor imagination’s diagnosis. The economy grew 4,0% even with less foreign investment. Moreover, the growth rate shows that the domestic consumption and public expenditure are strong, though not irresponsible. It also confirms that the Bolivian economy entered into an expansive cycle, which probably will finish in 2008. The 4,0% seems to hurt prides and self esteems, perhaps because it appears as a very, very healthy sign… Don’t you think? All points of view are welcome…

And don’t forget to visit:

Nada Particular for more detailed analysis of Bolivian GDP evolution (Spanish)

INE for Bolivian official statistics (Spanish)

ECLAC for statistics and papers regarding Latin American and Bolivian socioeconomic issues (Spanish and English)

UDAPE for Bolivian public policies analysis (Spanish)

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(*) Since data for last year's economic indicators is not already available at INE (Instituto Nacional de Estadística - National Institute of Sttatistics, the public office responsible for official information in Bolivia), all the information for the preset post was taken from ECLAC, Balance Preliminar de las economías de América Latina y el Caribe 2007. Santiago: ECLAC, 2007. All figures are preliminary.