March 17, 2008

The Economy Back in Discussion

MABB © ®

It's been a while since we've talked about Bolivia's economic trends. For the last years, it has been relatively stable. But, now the economy, and much worst, inflation, have made a come back. I just found a nice illustrative article from a Bolivian research institute that talks about...

How can $700 million in hydrocarbon revenues be bad for the poor?
By Lykke E. Andersen, La Paz, 31 July 2006

It was recently shown in an academic paper (1) that the natural gas boom
in Bolivia is likely not only to increase inequality but also to increase poverty.

How can this be true? How can windfall revenues of $700 million per
year, received by a clearly pro-poor government, increase poverty???

Three main mechanisms are at work:
It nicely lays out the perversion of the current Bolivian situation. Enjoy!

10 comments:

Anonymous said...

I have not yet read this academic paper carefully, but a few superficial comments:

It only has 8 references, of which 4 are by the authors. The other 4 have to do with modeling, except for the YPFB data. It would be interesting to see some more examples from other countries and natural resource booms.

The paper is dated 2006 and the high price scenario for year 2019 is based on $70 per barrel oil. This does not in itself invalidate the study "results," but $70 is looking cheap right now. It has fallen from $112 to $106 today.

The last lines of the author's press release is interesting, "The word "curse" does indeed seem quite appropriate in relation to natural resource abundance. Maybe with increased autonomy we can contain the curse within a few departments." Who gets stuck with the curse?

Centellas pointed toward another study by this author last year, in which she suggested that the Renta Dignidad does not effectively direct money toward the poor. See http://www.mcentellas.com/archives/2007/10/is_renta_dignidad_a_risky_investment.html

Gringo said...
This comment has been removed by a blog administrator.
Gringo said...

Here Evo strikes a blow against imperialism, and Gazprom benefits.

Please delete previous link.

miguel (mabb) said...

Eight references, I only see one.

The article picks your mind, more than anything. Just to consider that Bolivia might be having troubles because of its richness in natural gas is, at the most, ironic.

And, thanks for the links. The fact that Evo is making business with the Russians says a lot about Bolivian foreign policy approach at the moment.

Anonymous said...

The academic paper, cited at the bottom of the newsletter post, has 8 references. But the idea of a "resource curse" is not unique to this paper. That's why it's frustrating that she does not cite anything.

Anonymous said...

A paper with only eight sources is by no means 'academic.' I think the idea of the 'resource curse' is bunk. The inflation problem is being felt world-wide and is largely due to rises in the price of food.

miguel (mabb) said...

I see your point. Yes, she should be citing more people.

The worldwide inflation problem is mostly due to the high prices in oil. However, Bolivia has some particularities by itself. One example is the increased amount of dollars the government has and an increase in government spending.

Anonymous said...

I think it's possible to have a good paper with only 8 citations, if they are good citations that address the topic in a comprehensive way. I simply did not think that had been done in this case.

I think the resource curse is very real, but that's no reason to deny people the chance to try to take advantage of their resources. And I think some of what the papers' authors say is true. But I'm skeptical that autonomous departments will automatically do better than the national government. And I cannot figure out who should benefit in which proportions from gas produced in the Chaco (for example). It's not a straightforward question. Certainly the people most closely affected by the industry. But how much should be sent to the government in Tarija versus the government in La Paz?

The price of food is becoming related to the price of energy, since many farmers are growing plants to produce ethanol.

miguel (mabb) said...

I agree! Citations are there to clarify certain statements you make in whatever you are writing. They are also there to back up your arguments. And, it is sort of a service to your readers, so they know fully or at least have the opportunity to know what are you talking about.

The talk about a 'scientific paper' is irrelevant, I think. To me, it was evident the article was not a full article publishable in a scientific journal or any other publication of that sort.

To me, it was just a sort of opinion article, stating some things that did not need to be back up with too many citations because the ideas were somewhat self-evident.

That is one reason that I also agree with the person above. I think the curse idea has some logic. It is, at the very least ironic, that if Bolivia has a significant amount of natural gas to sell, the poor don't seem to be benefiting from it. Of, course, we might be a bit too anxious, but who can wait in this situation?

And those are exactly the kind of questions the politicians (in their own original way) are trying to sort out. So far, the government wants to get most of the benefits, while the departmental governments receive less. This of course, is a problem for the latter.

Who will benefit the most? that is the main question.

About the last statement, true. But that relationship is very weak, I would say. Not enough to affect global price levels. Perhaps in Brazil, where the government is actively trying to use renewable energy.

Anonymous said...

See cartoon at on fuel vs food at

http://www.copleynews.com/CopleyNews/Searches/PrintVersionViewLargerImage.asp