Six way splitt in the ranks of MAS. This is, by any means, no singular force.
On the one side we can observe regional factions such as La Paz, Cochabamba and Santa Cruz. The La Paz faction is the largest and has good possibilities of electing an assembly president, the Cochabamba faction is the social base of MAS and Evo Morales and has proportionally elected the most Masistas to the assembly. However, if a Masista from Santa Cruz would be elected to the presidency, it would be a good counterbalance and a appeasing sign for that department.
On the other side there is the Cocaleros faction, emiently syndicalist in nature. The Cocaleros are considered the bones of the MAS and many of them think they deserve to lead the assembly.
Lastly, there are two antagonist groups, the intelectuals and the indigenous. These two groups differ fundamentally on their approaches. The intelectuals argue that there needs to be people capable to negotiate and compromise. The indigenist camp argues that there is a historical need to place an indigenous person in the presidential seat, just because there was never one in such position.
The various factions are keen on getting the president's seat for themselves. The fact that there are so many groups dividing MAS is telling of the difficulties facing the Constituent Assembly.
I also wanted to place the IMF's assessment of the economic situation in Bolivia for review.
IMF Executive Board Concludes 2006 Article IV Consultation with BoliviaIn this post you only find the text, but you can find the original publication here (tables included)
Public Information Notice (PIN) No. 06/77
July 19, 2006
On July 17, 2006, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Bolivia.1
Despite wide-ranging economic reforms over the past two decades, the accomplishment of macroeconomic stability, and a major expansion of the hydrocarbons sector, Bolivia has achieved only modest gains in poverty reduction and inequality has remained high. The reform process, which encompassed privatizations and liberalization of the exchange and trade systems, contributed to a major decline in inflation and to an increase in growth in the 1990s. However, the growth performance deteriorated during 1999-2003 in the context of rising social tensions and political instability, and the partial recovery of the last two years has been concentrated in the highly capital-intensive hydrocarbons sector. As a result, Bolivia's key social indicators have continued to lag.
Over the past year, Bolivia has experienced major political changes, against the background of entrenched dissatisfaction with the country's poor social indicators and weak governance. Following a protracted political crisis, the constitution was amended in June 2005 to allow early presidential and congressional elections for a new full five-year period in December 2005, together with the first direct elections for regional governors. Agreement was also reached on calling a constitutional assembly and a referendum on regional autonomy in July 2006. The elections resulted in a major renewal of Congress and in a landslide victory for Evo Morales, the first indigenous head of state in Bolivian history.
The new government has inherited a favorable macroeconomic situation, associated in large measure with the extremely favorable international environment. In 2005, GDP growth was just above 4 percent and the fiscal deficit narrowed to 2.3 percent of GDP. Inflation was contained below 5 percent following an acceleration early in the year due to petroleum price increases, supply disruptions, and imported inflation. Financial sector stability improved as deposits and credit increased for the first time in several years, and the balance of payments remained strong with official foreign exchange reserves rising to historic highs. Financial dollarization declined, due to expectations of exchange rate appreciation as well as prudential and tax measures that have increased the cost of holding foreign currency. The Multilateral Debt Relief Initiative has resulted in a substantial reduction of the public debt burden.
Thus far in 2006, the economy has kept the positive trends observed in 2005. Economic activity has been led by high export values of hydrocarbon and mining products, which have contributed to a strong external current account surplus. Inflation has continued in the low single digits, following a decreasing trend that started in the fourth quarter of 2005, and the overall fiscal position is in surplus. In particular, sub-national governments have been accumulating sizable deposits at the central bank, thereby helping sterilize the monetary impact of the rapid international reserve accumulation. Indicators of banking system soundness have been broadly stable, with high liquidity and capital adequacy ratios above mandatory levels.
The economic outlook for the remainder of 2006 remains positive, helped in large part by continued highly favorable external conditions, notably high energy prices. Real GDP growth is expected at just above 4 percent, with inflation in the low single digits. The combined public sector is expected to record a near balance for the year as a whole as the temporary extra revenues accrued from the new hydrocarbons policy framework would not be translated immediately into investment spending by Yacimientos Petrolíferos Fiscales Bolivianos (YPFB). Reflecting debt relief under the Multilateral Debt Relief Initiative (see Press Release No. 05/286), the ratio of public debt to GDP is projected to decline from 71 percent at end-2005 to 51 percent by end-2006. Accumulation of official reserves is projected to continue, reflecting a strong external current account surplus associated with high international prices of fuels and minerals.
Executive Board Assessment
Executive Directors noted that, benefiting from prudent macroeconomic policies and a very favorable external environment, the Bolivian economy sustained a strong performance in 2005 and so far in 2006. This performance reflected satisfactory GDP growth, a strong balance of payments, low inflation, improvements in the fiscal position, and historically high levels of international reserves. Despite periods of political uncertainty, the banking system has remained stable and dollarization has declined somewhat. Reflecting debt relief under the MDRI, the burden of the public debt has been substantially reduced.
Looking ahead, Directors noted that Bolivia's short-term prospects are favorable but medium-term challenges remain. They encouraged the government to take advantage of its strong mandate to push forward with the necessary policies for cementing the recent macroeconomic gains, enhancing the business climate, and promoting higher, diversified, and more equitable growth. In this context, Directors welcomed the authorities' emphasis on safeguarding macroeconomic stability and strengthening governance.
Directors stressed the importance of fiscal prudence and strengthened public expenditure management to ensure fiscal sustainability. The combined public sector is projected to be close to balance in 2006 reflecting mostly strong revenues from the hydrocarbon sector. However, the deficit would re-emerge in 2007 in the absence of another exceptional hydrocarbon revenue yield, and also reflecting higher YPFB investments and payments for the acquisition of shares in the nationalized companies. Directors noted that this could have possible implications for debt sustainability. The authorities were therefore encouraged to strengthen expenditure management at all levels of government. In this context, Directors welcomed the government's firmness in containing wage increases to manageable levels. However, some Directors observed that salary compression at the higher levels appear at odds
with the government's economic strategy that may require an upgrading of the management of public entities. It was also stressed that the resources made available as a result of debt relief under the MDRI should be spent effectively.
Directors stressed that enhancing fiscal transparency and accountability at all levels of government will require strengthening the budget process and intergovernmental fiscal relations. The authorities were encouraged to resubmit to Congress the draft budget framework law. Regarding intergovernmental relations, the current revenue sharing and expenditure allocation system should be reassessed in light of the capacity to generate revenue at the subnational level, and made consistent with an agreed allocation of spending responsibilities across the different layers of government.
Directors expressed concern at rigidities in domestic petroleum pricing that generate inordinately large explicit and implicit subsidies. Accordingly, they stressed the need to move domestic petroleum product prices to international market-based levels, which could be undertaken gradually while using part of the resulting fiscal savings to protect vulnerable groups. Reflecting these subsidies explicitly and transparently in the budget would increase the public's awareness of their cost and support for their rationalization.
Directors recommended that attention be given to enhancing domestic taxation. Current plans to reduce exemptions and special regimes, rationalize the free trade zones legislation, and modify the VAT refund system to reduce fraud are welcome. Directors encouraged the authorities to revisit the scope for introducing a tax on high personal incomes, which would exclude the bulk of the population and thereby spread the tax burden more fairly. In the mining sector, where the government is considering an increased tax take, they noted the importance of ensuring that revenue measures do not discourage additional private investment.
Directors commended the central bank for continuing to pursue a cautious monetary policy stance. However, to better address inflationary concerns and improve the economy's ability to weather external shocks, many Directors recommended that the authorities consider a gradual and well-sequenced move towards greater exchange rate flexibility, which could be achieved in the context of a managed float. Such a move would require an adaptation of the monetary policy framework to monetary or inflation targeting. In this context, a number of Directors noted that it would be premature to adopt an inf lation targeting regime especially in view of the challenges associated with Bolivia's still dollarized economy. Some other Directors considered that, instead of moving to a managed float, it could be preferable to improve the operation of the current exchange rate regime.
Directors cautioned that, while the financial sector has strengthened notably, important challenges remain. In particular, care must be taken that the proposed public development banking system does not introduce distortions in the banking system, and that any related fiscal costs are clearly included in the budget.
Directors welcomed the government's emphasis on greater equity, transparency, and accountability. However, they saw the parallel emphasis on an elevated role for the state as risking the environment for private investment. Directors recommended that the authorities should therefore maintain a careful balance between government interventions in the economy and the preservation of appropriate incentives for private investment that remains critical to support growth and raise employment and living standards.
Directors observed that considerable uncertainty prevails in the hydrocarbons sector regarding the modalities for implementing the recent nationalization decree. They urged the authorities to work to achieve mutually acceptable arrangements with the concerned oil companies. Moreover, Directors noted that the expanded role newly assigned to YPFB will call for high-quality management and full transparency, consistent with international accounting and auditing standards.
Directors underscored that Bolivia may face a more competitive external environment for its nontraditional exports in the period ahead, including with the prospect of an erosion of preferential access to important markets. The authorities will therefore need to intensify their efforts to expand Bolivia's access to external markets. In addition, Directors considered that the medium-term outlook hinges crucially on the maintenance of a stable legal framework, notably with regard to property rights, which takes on added relevance in light of the land reform initiative and the potential for major institutional changes in the context of the forthcoming constitutional assembly.