August 30, 2012

Trade Balance: Some Consideration about Bolivia's Trade Surplus

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 The Bolivian government is enjoying a period of favorable economic conditions. Granted the conditions for positive macroeconomic stability were laid out in the reforms of the 1980s, the current government has a lot to do with Bolivia's current positive development. One of the most important decisions the Morales government has made while in office was to nationalize the hydrocarbons sector, i.e. the extraction and export of natural gas, Bolivia's most valuable natural resource today.

Aside from positive growth, Bolivia's economic data has been showing record levels of international reserves, the (if I am not mistaken) only budget surpluses in history and more currently, its trade surplus. But, what is trade surplus and what does it mean for Bolivia?

As you very well may know, trade surplus means, in simple terms, that Bolivia sells more to the world than it buys. It also means that Bolivia receives foreign currency, in essence more money, and is of course better than it was before.

The below graph, taken from a recent publication by the National Statistics Institute (INE), shows the development of trade in Bolivia comparing two periods (January to July) in two different years, 2011 and 2012. Ergo the data is recent, and of course preliminary.

The graph shows in clear terms that Bolivia exports (the orange bar) more than imports, and it does it in an increasing manner. As you can see, exports in January-July 2011 was 4.98 million dollars versus imports in the order of 3.98 million dollars. Similarly, exports in the period of January-July 2012 were 6.12 million dollars while imports reached 4.5 million dollars.

This graph gives a rosy picture of the Bolivian economy. However, the question inevitably rises, how rosy is this picture?

The table below shows Bolivia's international trade situation in a bit more detail. It shows Bolivia's trade balance by economic categories in the same periods above mentioned. The categories are: food and drinks, industrial infrastructure, fuel and lubricants, capital goods, transport equipment and parts, consumption goods and other goods.

If you take a closer look at the table, you will notice that, on the one side, the country imported relatively more foods and drinks in 2011 but that this deficit was overcome by 2012. In similar manner, Bolivia shows a positive balance in the area of industrial infrastructure. However, that is where it ends. A look down the table reveals that Bolivia is a net importer of capital goods, equipment, transport goods and consumption goods, which would suggest a deficit in its trade. Finally, the item that makes the most difference in Bolivia's account is fuel and lubricant. From the table you can see that Bolivia is a net exporter of these items, so much that the balance is very significant (US$1.600 in the first period and US$2.366 in the second period).

Within this category, you can find the export of natural gas to Brazil and Argentina. This is the most significant export of the Bolivian economy. In fact, it is arguable to say that Bolivia is heavily dependent on the export of this good and also from its price fluctuation. So much so, that in the last years, the rise in the price of natural gas has benefited the Bolivian economy, giving it more financial stability.

The following table answers the question of who buys these exports and from which countries Bolivia buys more goods.

For example, as expected, the first country in the list is Brazil, with which Bolivia has a very significant trade surplus. In fact, it is possible to observe that Bolivia has trade surpluses with the US, Argentina, Peru (with the exception of the 2012 period), and Japan. Nonetheless, none of these surpluses are as significant as the one with Brazil. The closest is the surplus with Argentina, a country which also buys natural gas from Bolivia.

In addition, worth noting are the trade deficits with China and Venezuela. On the first case, it is expected because of the economic strength China has been building, however, it is a bit curious in the case of Venezuela because the trade agreements and contracts between Morales and Chavez have been sold based on a mutual benefit. In this case, it seems that for now, Venezuela is benefiting more than Bolivia.

Finally, a brief analysis on which trade group benefits Bolivia the most is based on the table below. As expected, MERCOSUR and ALADI are the most beneficial for Bolivia. I am inclined to think that is because Brazil and Argentina are members of both groups. Again, as expected, APTA shows a surplus against Bolivia. Here I argue because China is a member. Finally from ALBA is not mention.

What does this all mean? I have been arguing, much like many others, that Bolivia, while it is going through a very positive phase of its economic development, it has to be careful because its well-being seems to be too dependent on the export of natural gas and its respective price fluctuations. This is nothing new, however it is an additional call for the diversification of the Bolivian economy.