Announcement of Consultative Group for Bolivia on December 4, 1986

, C'"J::i-::: - , '? - 11 (, World Bank ~ I ,- European Office : 66 . avenue d ' lena 75116 PAR IS. France - Tt'lephone 723 54 21 .,: : ;· I , PRESS RELEASE For Immediate Publication CONSULTATIVE GROUP FOR BOLIVIA Paris, December 4-- The Consultative Group for Bolivia met in Paris on December 3 and 4, 1986, the first such meeting since 1977. The revival of this group underscores the supper t of the int e rna ti ona l community for the courageous and far-reaching program of stabilization ind reform launched by the Government of Bolivia in August of 1985. The meeting successfully achieved its objectives to have a productive exchange of views on the Government's economic program, and to establish a cle ar understanding of the pr i or i t y are as need i n g i mm ea i ate i n tern at ion al ass 1 st - ance and of the size and types of financing which will allow Bolivia to resu me growth. The Meeting was chaired by Mr. Andre Gue, Country Programs Director in the Latin America and the Caribbean regional office of the World Bank. The Bolivian delegation, led by the Minister of Planning, Mr. Gonzalo Sanchez de Lozada, included Mr. Juan Cariaga, Minister of Finance, Mr. Fernando Illanes, Ambassador to the United States, Ambassadors to several European countries, Mr. Fernando Romero, Executive Director of the newly-for med Emergency Social Fund, Mr. Ronald Mac Lean, Mayor of the Municipality of La Paz, and other officials. There was also a delegation from Bol.1.v1.a 1 i:; f.>I.ivatt: sector, led by Mr. Carlos Iturralde, President of the Confederation of Private Entrepreneurs, that included severa l entrepreneurs and bankers. The Secretary General of the United Nations, Mr. Perez de Cuellar, also sent a spec i al messag e of s uppo rt.  7 '7 1 ,, , .,,. I • / - 2 - The Bolivian delegation described the chaotic situation of the economy as the present Government assumed office in August 1985. Inflation had reached annual rates of over 28,000% and fiscal deficit approached 30% of GDP. The officiai exchange rate was one-fifteenth of the rate on the parallel market. Within weeks the Government introduced a program of fundamental structural reform that freed exchange rates, interest rates ana prices of all but a handful of public services, liberalized trade, reformed the tax system and buttressed these measures with an extreme tightening of fiscal and monetary policies. Results have been impressive. Inflation has slowed to 2% per month, the exchange rate has stabilized, the gap between official anci parallel exchange rates has been all but eliminated and the fiscal deficit is likely to be only 4% of GDP this year. It was also recognized, however, that Bolivia will continue to face serious difficulties, to a large extent a legacy of previous mismanagement of the economy. Debt now stands at over five times the annual exports, output continues to fall for the seventh consecutive year and every fifth working age person is unemployed. In addition, the conr.Pntration of 90i of Bolivia's exports in just two commodities, tin and natural gas, caught the economy unprepared when the price of t 1 n co 11 apse d 1 n September of 1 9 8 5 and when the prices of 011, to which gas prices are related, tumbled in early 1986. It was clear to all that special efforts will be needed on the part of the donor commun i ty to provide the funds and technical assistance necessary for Bolivia to achieve sustainable growth. The donor community warmly supported the Government's extraordinary program and applauded the results achieved to date. There was clear agree m ent that an urgent priority is to increase investment as this is t he key to renew e d growth. In the short run the most effective way 1s to boost investment in and speed the implementation of the large existing project portfolio. Further, the private sector has launched an effort to design and pro mote investment in conjunction with the Government's overall program which ai ms to establish a cli ma t e conducive to priva t e investment. The Government emphasizea the priority it accords to ensurin g adequate credit for private investment. The Govern ment has initiated an a mbitious effort to redefine sector strategies which will provide the bas i s for the publ ic invest me nt program in the medi um term that is consistent wit h th e ongoing structural adJ ust ment effort. The program will be the focus of the next Consultative Gro up meeting, planne d for the fall of 1987.  ' / ..., • I (. - 3 - Members of the Consultative Group welcomed two other efforts that the Government has launched: the social Action and Drug Eradication Programs. The Social Action Program is aimed at alleviating the social costs of Bolivia's legacy of economic crisis, in the form of temporary support for employment-generating and social service programs, especially health and education, for the most severely affected social groups. The Meeting was assured that the Program was designed to be efficient, that it would pay attention to strict criteria of accountability and that it would be terminated after three years. The World D.::in lt t.1ill lc~J a .:it11:::1,;ldl worK1ng (;roup tormed to help in coordinating interested donors' assistance to the Social Program. In an unusual initiative the Bolivian delegation briefed the Group on the Government 1 s Drug Eradication Program. The Program is a response to Bolivia's cocaine problem which is threatening to undermine not just its economy but its very social and political fabric. A Working Group of parties potentially interested in supporting the proposed program was set up. It was agreed that a meeting would be convened in early 1987 to discuss next steps to implement the Program. The United Nations Fund for Drug Abuse Control expressed keen interest i n following up on this initiative. Preliminary indications of external financial assistance that can be expected during 1 987 suggest that the goal of US$470 million of total gross disbursements of external financial assistance needed to arrest the long slide in per capita output will be ac h ieved. Likely financial support to be provided for the also urgent Social Action and Drug Eradication Programs was indicated. The acknowledgement by many delegates of the urgency of the Econo mic Progra m in general and of the two Special Programs in particular, gives hope that the level of support will increase as the progra ms continue to show progress. Members of the Consultative Group attending t he meeting were Argentina, Brazil, Canada, France, Ger m any, Japan, south Korea, Spain, United Kingdo m, United States, the Andean Development Corporation, the Co mr.i ission of the European Communities, Fonda Andino de Reserva,- · Inter American Development Bank, Internat i onal Fund for Agricultu- ral Development, Internationa l Monetary Fund, the Unitea Nations and the World Bank Group. There were also observers from Greece, the Netherlands, Switzer l an d and the Organiz- ation for Economic cooperation and Deve l opm ent.