March 26, 2008

Effects on the Macro-Economy

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A mixture of factors are having an undesirable effect on the Bolivian economy. At different levels and times, the effects are being felt by the population, first, as shortages of comestibles and higher prices. On the one side, the historically high national reserves, which consequently have an effect on money supply, combined by likewise historically high government intakes from natural gas, are driving government spending up. On the other side, the government's fiscal policy of de-dollarizing the economy by creating incentives to use the boliviano, is wreaking havoc among exporters. Likewise, subsidies on the price of gasoline is provoking shortages due to smuggling. Gasoline (diesel) which the government has to buy at world prices to supply the national economy. On the world, level, the rise in prices, period, is also having an effect on Bolivia.

In Bolivia, the dollar has lost value in the last three years. The government has increased the difference between buy and sell for dollars, so that now is at a 10 point difference. This policy has the effect of de-dollarizing the economy. At the same time, people who deal in dollars tend to lose part of their intakes.

Is this bad for Bolivia? Only to the extent that it hits exporters. People who deal in dollars have been getting less because the dollar value has gone down. An exporter who has to exchange dollars for bolivianos will be getting less bolivianos per dollar. This places a burden on exporters, and Bolivia does not sell as much to the RoW. One more thing, if exports are more expensive, which is the case if the boliviano is more expensive, then the effect is double.

The Bolivian economy is set to have trouble in the rest of 2008. This will be deteriorating more if the world economy keeps on having trouble.