December 27, 2008

End of Year Balance 2008

MABB © ®

The Bolivian government is trying to pass its 2009 budget, called Presupuesto General de la Nacion or PGN. This is just a proposal for now, until Congress approves it.

According to the government, next year's domestic investment will be in the order of 1.8 billion dollars.

If we take a look at the graph above, taken from the government's proposal PGN, the picture is rather positive. Gee, who'd've thought! The government is projecting an annualized GDP growth of 5.75%, down from 6% in 2008; inflation is projected 10.6%, down from 14% in 2008; the fiscal deficit is projected to be 1.84% of GDP (I assume from GDP, it doesn't specify), while in 2007 there was a historic surplus of 1.7%, and in 2008 the projection is a deficit of 4.1%.

What can you tell from these numbers? Not much! The first thing to remember is that the numbers are from the government. It is logical that they will want to present the rosiest picture they've got. Having said that, it calls my attention that they are projecting still a growth for 2009, while many analysts are saying the region will be touched by the global financial crisis. I mean, the biggest economies in the world are projecting recession, that means less demand for foreign products, the price of oil is down to the mid 30s (let's remember the price of natual gas is coupled with the price of oil), trade benefits for Bolivia with its second largest trade partner (US) has ended in October, etc. Why is the government being so positive about the macro economic conditions? I am thinking if the government makes good on its promise to invest 1.8 bn, then economic growth can be possible. They are counting on it.

In addition, it has been reported plenty in the press that inflation in Bolivia in 2009 will be well above the government's predictions to 16% (IMF). But, over the last months, those predictions have been lowered to around 12%. If the government is able to keep up government intake at the level its been having, then they will not need to print more money and inflation will not surge. However, if the price of natural gas keeps down and the government keeps spending the way its projecting to do, then where else will it get the money? It is already projected to make loans of up to 1 bn dollars to YPFB for investments. We'll see.

FYI, here is a statistical report from the National Statistics Institute you can take a look at.

2009 should be another interesting year for Bolivia. This time, the economic factor will be more prominent, I think.