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Bolivia’s Economic Transformation: A Success Story

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Despite facing significant challenges, Bolivia has made remarkable progress in transforming its economy under the leadership of President Evo Morales.

Increased Tax Revenues and Social Spending

According to the International Monetary Fund (IMF), Bolivia’s tax revenues have increased substantially, rising from 21% of GDP in 2005 to 28% in 2014. Although there was a slight decline in 2018, the country’s tax revenue remains relatively high at 20% of GDP.

  • This increase in revenue has enabled the government to direct large amounts of resources towards social spending, particularly cash transfers targeted towards vulnerable sectors of the population.
  • The three most important transfer programs - Juancito Pinto, Juana Azurduy, and Renta Dignidad - have been instrumental in reducing poverty and improving living standards.

Foreign Debt Sustainability

The country’s foreign debt is also relatively sustainable, with a long-term maturity profile and low interest rates. According to the IMF, Bolivia’s gross foreign-denominated public debt stands at $10.5 billion, with only 9.5% due before 2029.

Improving Purchasing Power

Bolivia’s economic transformation has also led to significant improvements in purchasing power. The fixed exchange rate combined with relatively low domestic inflation and a consistent rise in minimum wages has improved the living standards of the vast majority of Bolivian citizens.

  • In fact, the real (inflation-adjusted) minimum wage has more than doubled since 2006, representing a 140% increase after adjusting for inflation.
  • The government’s bonus salary program, known as doble aguinaldo, has been instrumental in promoting consumption of domestically produced goods.

Challenges Ahead

However, the IMF has called for a reduction in real wages, attributing the slowing rate of private sector investment in non-hydrocarbons sectors to Bolivia’s minimum wage policies.

  • Nevertheless, Bolivia’s economic transformation remains a significant success story, with the country poised to continue its growth trajectory under the leadership of President Morales.

Figure 6: Minimum Wage and Consumer Price Index (Year 2000 = 100)

Sources: INE (2019 c), IMF (2019), authors’ calculations.