Document of The World Bank FOR OmCIAL USE ONLY Report No. 5155 PROGRAM PERFa 'ANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSIMENr LOAN (LOAN 1865-BO) June 25, 1984 Operations Evaluation Departu-ent This document has a restricted disbributio and may be used by recipints ouly in the performance of their official duties. Its contents may not otherise be disclosed witbout World Dank authorization. FOE OICIAL USE ONLY PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) TABLE OF CONTENTS Page No. Basic Data Sheet ......... ...................... i Highlights ........................................................ iii PROGRAM PERFORNANCE AUDIT MEMORANDUM I. BACKGROUND -........................................*... 1 II. STABILIZATION .......................... . ............ 4 III. THE SAL PROGRAM ..........................*.............. 6 IV. IMPLEMENTATION UNDER SAL ... ............................. 8 A. Economic Stabilization .............................. 8 B. The Exchange Rate ........................... . . ...... 10 C. Mining Tax Reform ................................... 11 D. Encouraging Agricultural Exports .................... 12 E. Public Investment and Financing .o................... 13 F. Loan Disbursement and Procurement ................... 14 G. Debt Monitoring and Control .......* .................. 15 H. The Technical Assistance Component .................. 16 I. The Bank"s Lending Program ..... ..................... 18 J. Timing of Mid-Term Review ... .... .. .................. 19 V. CONCLUSIONS AND LESSONS ................................. 22 Annexes 1. Stao.-istical Tables ................................................... 24 2. List of Studies Completed under the Technical Assistance Component .................... 34 3. Letter on Development Policies .......................... 35 Thisdownint hu a nsuicWddOuDton andmay be usedby dpontsoWyin the pufonnmwc of tdeirotidd dSiL Its cotents may nototherwis be dosed withoutWofd Bank authorizat. TABLE OF CONTENTS (Contiuned) Page No. PROJECT COMPLETION REPORT Summary ...*******.***....................... 41 Economic Background ..... ...... .. ............... 41 The Structural Adjustment Program ...................... 42 Implementation of the Program .......................... 43 Content of the Program .................................. 44 Macro-economic Effects cf the SAL Program . ............. 46 Technical Assistance Under the Program ................. 48 Conclusions .***** .................................. 49 Attachments: 1. Letter on Development Policies ........................ 51 2. Loan Disbursements and Procurement .................... 56 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) PREFACE This performance audit report relates to Bank Loan 1865-BO of 1980 for US$50 million. The loan supported a mediuar-term program of structural adjustment which for all practical purposes was aborted shortly after its inception. This operation was to become - up to the time of writing - the last lending operation by the Bank in Bolivia, with a hiatus in lending extending over more than three years.l/ Loan 1865-BO, which was originally conceived as a program loan, was approved by the Board of Executive Directors on June 5, signed with the Borrower two weeks later and became effective on June 25, 1980. The loan proceeds were to provide quickly available funds in support of the balance of payments, but US$1.3 million of the total was earmarked for technical assistance to cover studies aimed at guiding policy changes, particularly in agriculture and mining. The bulk of the loan (US$48.7 million) was released in two tranches, the first amounting to US$25 million in July, and the remainder in November 1980. It took time to design, draw terms of reference for and implement the technical assistance component which was later merged into a UNDP technical assistance project for a comprehensive study of the Corporacion Minera de Bolivia (COMIBOL) for which study the Bank acted as the executing agency. The research was completed at various dates in 1980 and 1981, and the funds for this component were fully disbursed by eud-1981, the closing date having been amended in July 1981 from June 30, 1981 to Narch 31, 1982. This Program Performance Audit Report (PPAR) is made up of two parts: (a) a Program Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED) and, (b) a Frogram Completion Report (PCR) prepared by the Latin America and the Caribbean Regional Office. The PCR, dated June 30, 1983, is on the whole comprehensive and candid. An OED mission visited Bolivia in November 1983 and held discussions with many individuals, including officials of the Central Bank, the Ministry of Finance, the Ministry of Planning and Coordination, the Ministry of Industry, Commerce and Tourism, the National Institute of Statistics, the World Bank Resident Mission, the IMF Resident Mission and others in the private sector. Besides, discussions were held with Bank staff associated with this operation as well as with IMF staff. All concerned have been helpful and cooperative. The PPAM is based on the PCR, the President's Report, various economic reports by both the Bank and the Fund, memoranda on file and the discussions mentioned above. No comments were received from the Borrower. 1/ There was, however, an advance of US$1 million in 1982 out of the Project Preparation Facility to cover feasibility studies relating to a prospective gas project. - ii - PROGRAM PERFORNANCE AUDIT BASIC DATA SHEET BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) STRUCTURAL ADJUSTMNT LOAN DATA (amounts in US$ million) As of July 31, 1983 Original Disbursed Cancelled Repaid Outstanding Loan 1865-BO 50.0 50.0 0 0 50.0 Original Loan Dates Actual or Re-estimated Initiating Memorandum n.a. n.a. Letter of Development Policies - 04/01/80 Negotiations 04/80 04/25-04/28/80 Board Approval 05/80 06/05/80 Loan Agreement 06/80 06/18/80 Effectiveness 06/80 06/25/80 Loan Closing 06/30/81 03/31/82 Actual Completion 06/30/81 12/31/82 CUULATIVE LOAN DISBURSEMT FY81 FY82 (i) Planned 50.0 50.0 (ii) Actual 48.7 50.0 (iii) ii as Z of i 97.4 100.0 MISSION D&TA Month/ No. of No. of Date of Year Weeks Persons Manleeks Report Preparation 10/79 n.a. n.a. 13.2 Appraisal 10-11179 3 n.a. 14.1 03/21/80 Post-Appraisal 02/80 2 2 0.6 04/29/80 Supervision I 08/80 2 2 17.5 09/19/80 Completion n.a. n.a. n.a. 2.3 06/83 FOLLOW-ON SAL OPERATIONS None - iii - PROGRAM PERFORKMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) HIGHLIGHTS This SAL was advanced at a time when structural adjustment was needed, and the package of reforms under the loan seems to have been well chosen to address the main weaknesses and lacunae in the Bolivian economy in the late seventies. The medium term structural adjustment process was built on a shorter-term stabilization program, developed in conjunction with the International Monetary Fund, but which, in the event, faltered. Although the international environment has not been very favorable to the liberalization drive embodied in the SAL program, the failure of the latter is largely due to the fact that many of its elements were not implemented. The main thrust of the program, namely the promotion of exports through an adjustable exchange rate, was dissipated as inflation raged and the exchange rate failed to change in order to attain export competitiveness (PPAM, paras. 25-27). Lack of progress was also evident in controlling the public sector's financial deficit (PPAM, para. 21) and in monitoring and rationalizing investments (PPAM, paras 33-35). In practically all these areas the reforms have been as slow as they have been slight. Some progress was made, however, in implementing the technical assistance program (PPAM paras. 42-44) which has provided various insights for economic policy changes, and in recording external debt (PPAM, para. 38). On the whole, as the PCR states, the loan cannot be judged a success (PCR, para. 29). Not only was the program not implemented, but its impact, if any, has been negligible. Much of the blame for this failure must be put on the frequent change of government since 1980, as political instability made it impossible to pursue longer-term programs and in some cases, such as the strengthening of the monitoring capability at the Ministry of Planning and Coordination, there were reverses after certain steps forward. It Is to the credit of the President's Report that the political risk surrounding the implementation of the SAL was highlighted beforehand. In order to circumvent this risk, the loan was deliberately tranched, and the Board was assured that a careful review would be carried out in mid-term before the second tranche was released. But the Bank did not avail itself of the opportunity to delay the mid-term review until the new government (which assumed power in August 1980) got established and some record of progress under the loan became evident. This opportunity had been written into the Loan Agreement itself (PPAM, para. 48). Instead, the Bank opted to establish an early policy dialogue with the new authorities to ensure that the reform program would be kept in place. The second tranche was released after the government had endorsed the letter on development policies and taken the actions recommended by the review mission. In releasing the second tranche, however, it seems that the political risk of maintaining the program, which had been correctly stressed at appraisal, was underestimated by Bank staff. - iv - It is significant that no further loans have been made by the Bank to Bolivia since the SAL loan in mid-1980 (PPAM, paras. 45-46) - this in itself indicating the unusual environment prevailing in Bolivia-Bank rela- tions. A SAL operation presupposes a continuing dialogue and a long-term relationship between Borrower and Bank where macro-economic adjustment goes hand in hand with a carefully designed pattern of Bank-supported projects. PROGRAM PERFORMANCE AUDIT MEMORANDUM BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) I. BACKGROUND 1. The Bolivian economy has certain structural features which need to be stressed at the outset of this exercise. First, it is an economy domi- nated by primary activity, mainly mineral extraction (tin, silver, lead, copper, bismuth, antimony, wolfram, zinc as well as petroleum) and subsis- tence agriculture. Secondly, the share of the public sector in the economy is large or dominant in the mineral activity, in total investment (normally), and in exports which are very largely minerals. Thirdly, much of agri- cultural production is carried out on poor soil under uncertain rains, with marketing and access to inputs hampered by the difficult terrain and under- developed roads and almost a complete absence of institutional support. Fourthly, the economy is open to the outside world through many unofficial channels, including large contraband trade flows, the extent of which cannot be ascertained, this coupled with a proclivity of the authorities towards declaring official prices for many products which are unable to equilibrate the market with a tendency for parallel prices to prevail. The foreign exchange market is a significant representative of such a market. In addition to these characteristics, political instability has limited the ability of governments to pursue and sustain economic objectives over any length of time. Since the signing of the loan agreement for SAL in June 1980, there have been four governments, both military and civilian, with the latter often in the form of coalitions that tend to lose cohesion when difficult economic options are faced. 2. Bolivia is one of the poorest countries in Latin America, GNP per capita being around $600 (1981). The population was estimated at 5.6 million in 1980 growing at 2.8 per cent a year. The labor force, amounting to some 1.7 million, contains large elements of underemployed labor in agriculture and services as well as other activities. Of the employed labor roughly 54 per cent is in agriculture, 5 per cent in mining and 9 per cent in manufacturing.I/ The country remained thoroughly underdeveloped (save for the mineral sector which was not integrated with the domestic economy) until the revolution of 1952. The agrarian reforms and nationalization of the 1/ The source for these data is the World Bank, Bolivia: Structural Constraints and Development Prospects, (Report No. 4194-BO) January 12, 1983, Statistical Annex. - 2 - larger mines in the early fifties led to a decline in economic activity until about 1958 when the economy began to grow, averaging about 5 per cent a year until the eve of the SAL.2/ 3. During the Sixties Bolivia's proceeds from exports (virtually all minerals and three-quarters of which by value were tin) had grown from about $50 million a year to a little under $200 million, on account of increasing volume as well as prices - each roughly doubling during the decade. Early in that period, exports of crude petroleum were of the order of 5 per cent of total exports by value, but grew steadily in the late sixties as a result of great expansions in output. In 1972 petroleum exports brought in US$49 mil- lion or 19 per cent of export proceeds, but two years later after the 1973/74 oil price increase they fetched US$161 million in one year, and tin exports had almost doubled in reaction to a more than doubling of price so that total exports in 1974 were valued at US$556.4 million. From then on, however, as a result of stagnation in output and soaring domestic consumption, the crude petroleum exportable surplus declined, and even after the 1979/80 surge in prices, accounted for only 2 per cent of exports in 1980. However, natural gas exports (to Argentina), first appearing in 1972, grew steadily after- wards, became equal in value to crude petroleum exports about 1977, and by 1980 provided 23 per cent of total export proceeds. In 1982 exports of natural gas were valued at $382 million and accounted for 46 per cent of all merchandise exports (see Table 8 in Annex I below). 4. Bolivia's gross terms of trade improved by 65 per cent between 1973 and 1980, but the quantum index of exports advanced very little in this period. Improved export earnings enabled Bolivia to finance a growing volume of imports which roughly doubled in real terms between the first half and the second half of the seventies. Several repercussions and policy actions were to follow. 5. First, as the bulk of minerals are extracted in the public sector, the latter's share in the economy was to expand roughly from a quarter to about 30 per cent during the seventies. Second, as the terms of trade improved, Bolivia's creditworthiness for international commercial borrowing vastly improved, and this resulted in a great increase in international borrowing simultaneously with the decline of concessional capital inflows. Foreign borrowing helped to finance a massive investment effort part of which was of dubious economic worth. Third, as often happens, windfall affluence led to financial laxity in balancing the national budget and external payments, and the current account deficit grew from a negligible proportion of GDP before 1975 to 6 per cent in 1975, and 8 per cent in 1978./1 It did 2/ Apparently per capita income did not recover to its 1952 level until 1970 (World Bank, President's Report, Report No. P-2811 dated May 12, 1980, para. 3). 3/ Bolivia: Structural Constraints and Development Prospects, op. cit. para 6. not help that the Government sought low administered prices for consumer goods, including petroleum products, and higher minimum wages and salaries. Such policies dulled the incentives to produce as well as encouraged consumption both in the public and private sectors. 6. The higher inflow of international capital in the seventies, coupled with the gains from the terms of trade, gave the wrong signals also about the peso exchange rate which remained constant in nominal terms (at 20 pesos per US$) from 1972 to 1979 despite a high incidence of inflation which caused the consumer price index to more than triple in the same period.4/ The real appreciation of the exchange rate that resulted was to discourage job creation by cheapening (imported) capital relative to labor, and to work as a strong disincentive to exporters whose peso proceeds from exports were also diminished by higher wages and, in the mineral sector, an antiquated method of reckoning the tax base. The public corporations in mineral extrac- tion and processing, petroleum, power and transport became extended with redundant labor and unable or unwilling to shed it, suffered from low prices for their products and were unable in most cases to finance fully their investment programs without resort to borrowing. As in many developing countries the public enterprises were used to promote social objectives to the detriment of their economic efficiency. 7. Flow-of-funds analysis covering the second half of the seventies indicates a drastic reduction in domestic saving rates from about 25 per cent of GDP in 1975 to 9 per cent in 1979, with both the public and private savings eroding and the former turning negative. By 1979, therefore, domestic consumption had become 91 per cent of GDP. Investment, while remaining considerably above domestic savings, also declined from 19.2 per cent of GDP to 17.6 per cent over the same period. The gap between saving and investment in 1979 had grown to 8.6 per cent of GDP.5/ 8. The trade balance, in surplus in 1974 to the tune of US$190.3 million, turned into deficit which, by 1979, had reached US$201.5 million. The current account surplus of US$146.8 million also became a deficit of US$383.4 million over the same period. The foreign debt increased from US$0.8 billion in 1975 to US$1.7 billion in 1978.6/ By end-1979, the external debt of the public sector, including most short-term liabilities, 4/ See annual inflation rates in Statistical Table No. 5, Annex I. 5/ The flow of fund estimates for Bolivia, though available, should be taken as approximations only and they are frequently being revised. See IMF, Bolivia - Recent Economic Developments (SX/82/162, August 9, 1982) Table 8 and Bolivia - Request for Stand-by Arrangement (EBS/80/17E, January 22, 1980), Table 1. 6/ World Bank, Bolivia: Structural Constraints and Development Prospects, op. cit., para. 10. had exceeded US$2 billion.7/ This gave rise to expanding payments of service interest, which grew from 5 per cent of exports in 1974 to 19.3 per cent in 1979 under the impact of rising interest rates, shorter maturities and expiry of grace periods.8/ II. STABILIZATION 9. In 1978 a caretaker civilian government replaced the military government a.ad in the following year initiated a program of reforms seeking to restore internal and external balance and the confidence of foreign lenders. The program was in two phases, a short-term stabilization phase covering 1980, specifically designed to earn IMF support for a stand-by arrangement, and a medium-term phase which, though also outlined to the INF, was more geared to attract World Bank support for a Structural Adjustment loan. The program worked out with the Fund was to become an integral part of the SAL program. It3 objectives are outlined in the "Memorandum of Economic Policy" attached to the letter dated December 26, 1979 from the Finance Minister to the Managing Director of the IMF in the following quantitative terms:9/ -The major objectives of the program for the period 1980-83 are a reduction of the current account balance of payments deficit from the present level of about 10-1/2 per cent of GDP to about 5 per cent of GDP, and to accelerate real economic growth from the present annual rate of less than 3 per cent to the range of 4-1/2 per cent to 5 per cent by the end of the four-year adjustment period. These objectives could be achieved by raising domestic investment to the range of 21-22 per cent of GDP and domestic savings to the range of 16-17 per cent of GDP, both levels that were reached in the early 1970s. With the pursuit of appropriate 7/ See Statistical Table No. 9. External debt is here defined as outstanding and disbursed public and publicly guaranteed debt repayable in foreign and local currency, excluding short-term debt of the financial sector. 8/ See IMF, Bolivia - Recent Economic Developments, op. cit., Appendix II, p. 58. Including amortization, total debt service was about 37 per cent of exports of goods and non-factor services in 1979. 9/ See Annex I to Attachment II (Annex to Stand-By Arrangement) IMF, Bolivia - Request for Stand-by Agreement (EBS/80/17E) dated January 21, 1980. At the time Bolivia also requested a Trust Fund Loan (which was granted) and was aiming at obtaining IMF support for an Expanded Fund Facility in support of a program covering 1981-83, but this was not to be. - 5 - domestic policy and of a rational balance of payments management, Bolivia should be able to attract net foreign capital inflows from abroad of the order of 5 per cent of CDP on a reasonably steady basis, while the overall balance of payments would be brought into equilibrium by 1982." 10. The 1980 stabilization program aimed at realizing a substantial reduction in the overall balance of payments deficit in that year, and establishing the basis for sustained economic growth in the period ahead. To achieve these objectives, in the words of the same document, "(a) a viable exchange rate will be maintained; (b) the overall public sector deficit will be reduced; (c) the public investment program will be rationalized; (d) public sector rates and prices will be revised so as to reach realistic levels; (e) monetary policy will be consistent with the balance of payments target; and (f) the external debt operations of the public sector and the banking system will be controlled." 11. On November 30, 1979 the fixed relationship that had existed since 1972 between the peso and the US dollar was abandoned. The peso was devalued from US$-$b20 to US$-$b24.51 (buying) and $b24.53 (selling). This devalua- tion was accompanied by a decision to operate a floating rate, managed by the Central Bank. The understanding was that the level of the float would be adjusted in line with movements in Bolivia's net official lnternatlonal reserves and changes in the relationship between domestic and foreign prices. Thus reliance would be heavy on the exchange rate to correct the balance of payments disequilibrium. This decision was not Implemented, the new rates remaining unchanged until February 1982. Other instruments for the short-term adjustment included demand management measures, and limits on assumption of external and internal debt. The main performance criteria established under the Stand-by were: (a) ceilings on the net domestic assets of the Central Bank; (b) ceilings on the banking system's net claims on the non-financial public sector; (c) cumulative quarterly targets for the Central Bank's net inter- national reserves; (d) cumulative quarterly limits on external debt operations of the pub- lic sector; and (e) a limit on the external indebtedness of private banks with a maturity of up to three years. 12. This program was approved by the IMF on February 1, 1980 and the amount of SDR 66.375 million (equivalent to about US$86.3 million) was made available to Bolivia in tranches, the release of the tranches being contin- - 6 - gent on the observance of the performance criteria.10/ The first three tranches were released, respectively in March, June and August 1980, but the fourth was denied as the limits and ceilings agreed upon were not observed. III. THE SAL PROGRAM 13. In the Letter on Development Policies addressed to the Bank (April 1, 1980; see Annex 3)the new Finance Minister (different from the one who had signed the IMF letter) reiterated the adjustment program already communicated to the IMF: short term domestic and external imbalances would be removed, and the major structural problems which had affected the country's economic growth would be reduced or eliminated in an attempt to seek economic recovery. The main components of the program as described in this letter were three: (a) the economic and financial stabilization measures agreed with the IMF; (b) specific measures for export promotion; and (c) a public investment and financing program. The letter described steps already taken and others yet to be taken under all three components. Apart from (a) which has already been covered, the export promotion and public investment programs were outlined as follows. Specific Measures for Export Promotion 14. Poor export performance was blamed on an over-valued exchange rate, faulty pricing of hydrocarbons and agricultural products, lack of specific incentives for agricultural exports and an inappropriate structure of mineral taxation. The government stressed its intention to -reverse this tendency" and pursue policies that would foster the development of exports which were targetted to grow 'at about 6% per annum in real terms over the period 1980- 85", and to reduce the heavy reliance on exports of tin from over 50X of merchandise exports in 1979 to about 33% by 1985. 15. In order to promote exports the government was determined to reform the structure of mineral taxation - minerals being the source of the bulk of export proceeds. Already a mineral tax reform had been initiated, including the elimination of the export tax, the updat'.ng of presumed costs and 10/ The tranches (in million SDRs) were determined at 26.375 until April 30; 14 until July 31; 13 until October 31 and 13 until end-1980. establishing an adjustment factor for presumed costs linked to the floor price of the International Tin Council.II1 The government acknowledged the need for further reform aimed at increasing investment and production in the mineral sector. 16. Agricultural prices had been too depressed for the creation of export surpluses. Farm-gate prices had been increased for beef, dairy products and poultry, and the process would continue for coffee, with the gradual introduction of quality price differentials for both coffee and beef. 17. Already there was a program supported by the World Bank to ascer- tain the magnitude of the gas reserves- and once sufficient reserves were located, preparation would start on a gas pipeliLne for export to Brazil and other countries. Public Investment and Financing Program 18. The other major area covered under SAL concerned public investment and its financing with the view of controlling and rationalizing the invest- ments, and increasing resource mobilization so that the public sector deficit was reduced. The idea was not so much to reduce the level of investment (though this was probably inevitable at the initial stage of the adjustment program to achieve the short-term equilibrium often described as stabilization) as to rationalize its composition, with emphasis on projects yielding quick returns and those contributing directly to the promotion of exports and eventually raising the share of investment in GDP in the interest of promoting growth.12/ The Finance Minister's letter expressed government intention to give priority to productive projects in agriculture, mining, manufacturing and hydrocarbons, particularly to projects with export orientation. The government undertook to maintain essential levels of investment in social infrastructure and transport as needed, but overall public investment would be tailored to the availability of financing, including foreign financing. Net domestic borrowing by the public sector would be set at levels consistent with the stabilization program. To increase public savings the prices charged by public enterprises would be raised. -Our policy is to set public sector tariffs at levels that allow enterprises to earn reasonable rates of return and that ensure a significant proportion of self financing for investment." Since ENDE (the National Power Corporation) would be embarking on a large investment program, power tariffs, 11/ Instead of basing the tax on actual profits, the tax had been based on a theoretical surplus based on presumed costs and the export price and this resulted in grave over-taxation. 12/ As mentioned earlier (para. 9), the Memorandum of Economic Policy addressed to the Managing Director of the IMF on December 26, 1979 spoke of raising domestic investment to the range of 21-22 per cent of GDP by the end of the 1980-83 period. -8- already recently increased by 30 per cent, would again have to be raised significantly. Hydrocarbon prices would also be increased 'in order to bring the domestic prices closer to international prices' (para. 11). Control over public enterprises would be increased to ensure that programmed investments would not be exceeded and, for that purpose, the etaff of the Ministry of Planning and Coordination would be strengthened. The Central Bank would exercise control over external borrowing, including loans of a maturity shorter than a year. IV. IMPLEMENTATION UNDER SAL A. Economic Stabilization 19. Bolivia initiated a series of short-term economic measures which formed the basis of its stabilization program with the IMF. The thrust of the program was to restore short-term economic balance largely through demand management measures, with the aim of reducing the fiscal and balance of payments deficits. Changes were introduced in three areas: (a) the peso exchange rate, having remained constant for eight years, was devalued in late 1979, and in view of a tendency to inflation would be further adjusted to maintain export competitiveness; (b) the prices of public sector enterprises, notably of petroleum products, were raised and would be adjusted periodically in an effort to contain demand and create exportable surpluses, reduce deficits and help finance investment; and (c) monetary reforms were initiated, including elimination of dollar-denominated peso deposits, and restructuring interest rates and legal reserve requirements, with the view to increasing savings. Related measures covered the renegotiation of public commercial debt, controlling public sector borrowing and meeting targets for international reserves. 20. As the PCR has noted (para. 16) most of the elements of the stabi- lization program were already in place by the time the SAL was made in mid- 1980, and the various ceilings/targets agreed with the IMF were observed until the third quarter of 1980, but the stand-by arrangement broke down later. The factors behind the failure of the stabilization program are stated in the PCR, para. 13. The military government, which had come to power in July 1980, blocked the way against the newly elected government and responded harshly to internal dissent. Unrest in the mines led to reduced output, and tax revenues and export proceeds dropped in the second half of 1980. The public sector deficit widened, despite a drastic reduction in pub- lic investment. Resort was made to expanded central bank credit to finance the rising current expenditure, including extraordinary military purchases. "By September 30, the Garcia Meza Government was no longer in Compliance with ceilings on net domestic borrowing...." (PCR, para. 13). -9- 21. In terms of actual results 1980 showed mixed performance. A few key indicators are shown in the Table below. Table 1. Summary Economic Indicators 1979 and 1980 1979 1980 Rate of Inflation (GDP deflator) Z 18.2 45.8 GDP Growth (Z at constant prices) 1.8 0.6 Domestic Investment (Z of GDP) 17.6 12.9 Savings/Investment Gap (Zof GDP) 8.6 2.6 Public Sector Savings (Z of GDP) 1.5 -2.0 Public Sector Capital Expenditure (Z of GDP) 10.0 6.4 Treasury Current Revenue (million $b, current prices) 8,359 11,076 Treasury Current Expenditure (million $b, current prices) 10,411 14,535 Treasury Current Account Deficit (million $b, current prices) 2,052 3,459 Treasury Current Account Deficit (as % of GDP) 2.4 4.2 Merchandise Exports FOB (million US$) 762 942 Merchandise Imports CIF (million US$) 1,008 834 Balance on Current and Transfer Account (million US$) 388 142 Source: Statistical Annex and IMF Reports. As the above data show, inflation accelerated as the tempo of the real economy slowed down. The public sector's contribution to domestic savings became negative, but, owing largely to a drastic reduction in aggregate domestic investment, the savings investment gap narrowed. The accounts of the Treasury show a rise in current expenditure in 1980 in excess of the rise in current revenue. In real terms, however, they both declined, but the dec- line in revenue was much more pronounced than the decline in expenditure. The State Mineral Corporation, COHIBOL, had a deficit on its current operations and, despite reduced investment, its overall deficit was 9 per cent of its current revenues. The other major public enterprise, the State Petroleum Corporation, YPFB, realized a small surplus which covered its capital formation - thanks to the increase in petroleum prices. 22. The decline of activity affected also the private sector whose investment relative to GDP further declined. Real interest rates became strongly negative and have remained negative since. The current account deficit of the balance of payments had nar-owed largely on account of severe curtailment of imports. This deprived many activities of needed inputs and added to the inflationary pressures. GDP grew only by 0.6 per cent, representing a decline in GDP per capita of about 2 per cer . In 1980 mining production (including petroleum and natural gas) declined by 2.6 per cent, and manufacturing and construction by 1.8 per cent. The inflow of foreign capital fell, despite debt rescheduling, and the overall capital account was - 10 - in deficit, which caused the Central Bank's net international reserves to fall by US$134 million (see Table 7 in Annex 1). B. The Exchange Rate 23. A cornerstone of the adjustment program was the attempt to render exports competitive mainly through the adoption of 'realistic' exchange rates. Schedule 2 of the Loan Agreement specifically mentioned as a vital component of the program -maintaining an appropriate relation between domestic and external prices so as to ensure the competitiveness of Bolivian exports.- Bolivia, by virtue of its small size, could not influence world prices for the various primary products it exported, and devaluing the peso could only affect the supply side of exports by offering higher peso prices to the exporters. Implicit in the design of the program, therefore, was that such suppliers' response to higher prices would be positive and perceptible - a reasonable enough assumption though one that had not been previously tested. 24. Another objective sought through the depreciation of the peso was to cause imports of capital goods to become more expensive relative to labor so that new investment would create greater job opportunities through substitution of labor for capital. Failure to adjust the exchange rate, coupled with severe import shortages and drastic declines in domestic investments were also to hamper the adjustment sought through the deprecia- tion of the excbange rate. As mentioned earlier, the exchange rate had not been changed since 1972, but the peso was devalued from 20 to about 25 per US dollar on November 30, 1979,13/ and the President's Report had stated that 'further adjustments would be made to ensure the maintenance of Bolivia's export competitiveness- (para. 11). 25. Such adjustments were slow to materialize and the exchange rate remained unchanged from November 1979 to March 22, 1982 when the -illegal, but tolerated, parallel exchange market' had reportedly reached $b115 per US$1 (IMF, Bolivia - Recent Economic Developments, SM/82/162, Appendix I, p. 36). The new exchange rate was set at $b44 to the US$1, and a dual foreign exchange market was allowed to function, with a free market that registered a rate of $b160 per US$1 on July 15, 1982 (ibid.). On November 6, 1982 the dual market was abolished and the peso was again devalued to $b196 per US$1, but once more a parallel market developed and the spread between the parallel and official rates widened gradually until it exceeded $bl,000 per US$1 in late 1983 (see Table 6 in Annex 1). 26. Although the "free" or "parallel" rates could not be taken as representing equilibrium rates, in that they represented market forces in only a part of the market and were influenced also by speculation, they indi- cated by the widening spread between them and the official rate that the 13/ The devaluation of the peso from $b20 to $b24.51 per US$ works out to a devaluation of 18.4% and not to 25% as stated in the PCR, para. 8. - 11 - latter was out of step with the objectives of the program, the devaluations occurring only too late and in too short steps. Meanwhile inflation, as measured by the GDP deflator, was mounting (39 per cent in 1980; 30.5 per cent in 1981; 165 per cent in 1982 and 240 per cent in 1983 - see Table 5 in Annex 1). A rough calculation by IMF staff shows that the real effective exchange ratel4/ had appreciated by about 5 percent in the first half of 1980 (i.e., between the November 1979 devaluation and the initiation of the SAL), and appreciated again by another 3 per cent by the end of 1980. A year later this real effective exchange rate had appreciated again by another 34 per cent. Despite the March 1982 devaluation, the peso kept appreciating until the real effective rate was nearly double the rate it had been in mid-1980. Again, despite a further devaluation in late 1982, the real effec- tive rate in the third quarter of 1983 was 54 per cent higher than it had been in mid-1980. This most powerful of instruments to promote exports was thus never used as intended in the adjustment program. 27. The PCR glosses over the failure to adjust the exchange-rate as required, and in para. 14, in reference to the mid-term review mission, it states that Bolivia had in fact been judged to have complied with the Loan Agreement condition that export competitiveness be maintained. The apprecia- tion of the exchange rate, however, coupled with the foreign exchange con- trols that obliged the exporters to surrender a certain proportion (often the whole) of their foreign exchange earnings to the Central Bank at the official rates, in fact acted as a strong disincentive to export and dwarfed any pro- gress made under the loan to promote exports through reducing the burden of taxation. C. Mining Tax Reform 28. The SAL program quite rightly included the reform of mining taxa- tion as another ingredient. The President's Report contained ample justifi- cation for this, pointing out the importance of the mining sector to Bolivia, the multiplicity, complexity and rigidity of the various taxes levied on the sector and stressed the strong disincentives, resulting from taxation of exports, against expansion and efficient utilization of existing capacity (paras. 24-26). The steps taken prior to SAL were adequately described in the President's Report, and these were judged to be expected to go a long way in encouraging investment and production', but further reforms, the President's Report added, might be needed, particularly to increase incen- tives for exploration and development of low grade ores, and to update and modify the adjustment factor for presumed costs. The technical assistance component of SAL (see below, paras. 39-44) included a study of this topic, 14/ Defined as the average nominal exchange rate against the currencies of its main trading partners, weighted by Bolivia's trade with these partners, corrected for inflation both within Bolivia and in its trading partners. - 12 - and the results of this study were brought out in the 1983 World Bank Economic Report on Bolivia and used as a basis for the detailed coverage given in the PCR (para. 18) of the same subject. It should be stressed here - as argued before - that any advance made through reducing taxation on the mining sector was more than offset by the over-valued exchange rate and the exchange control system which have acted as strong disincentives to production and exports. 29. The impact of the above described developments on exports has not been very favorable. As it happened, the value of exports in current US dollars grew by an average of 5.3 per cent between 1979 and 1982 (preliminary figures), and the share of tin in total exports (CIF) declined from 46.2 per cent in 1979 to 30.1 per cent in 1982. The expansion in volume can be largely explained by the growth in the exportation of natural gas which more than offset a drastic reduction in exports in real terms of the metals group (by 21 per cent) and of other exports by 30.5 per cent. The decline in the share of tin in total export proceeds derives partly from a decline in the unit value of tin exports (in current US dollars by 15 per cent) and more importantly in volume (by 18 per cent), and does not derive from diversifica- tion of exports as intended. Between 1979 and 1982 the value of non-tradi- tional exports (mainly sugar, coffee, wood, handicrafts and others) fell in current US dollars from $115.6 million to $80.4 million (see Table 8 in Annex I below). The quantum index of metal exports declined by 3.4 per cent in 1981, 11.9 per cent in 1982 and by a further 12.6 per cent on average during the first half of 1983 (see Bank of Bolivia, Statistical Bulletin No. 247, June 1983). D. Encouraging Agricultural Exports 30. The aim of diversifying Bolivia's exports by increased agricultural exports was also not realized. The program had sought movement towards liberalizing farm prices and had stressed the importance of raising farm gate prices and differentiating in pricing between various qualities in order to promote production of exportable commodities such as coffee and beef. In Bolivia, the Ministry of Commerce and Industry has been in the habit of declaring prices for many commodities, agricultural as well as non- agricultural, which have importance for the urban consumers (sugar, flour, eggs, petroleum products) both at retail and at wholesale. The effectiveness of these price controls has often been dubious, with black market prices dominating. For the producers no effective mechanism, supported by institu- tional arrangements, existed to transmit such prices to the farm gate. 31. It was probably over-optimistic at the design stage to expect the government to operate an effective system of support for producers' prices without a clearly defined mechanism supported by funds and institutional arrangements including marketing, credit, transport and storage. The PCR rightly concludes (para. 15) that any gains obtained by raising agricultural prices prior to the SAL, had been largely offset by inflation in the course of 1980, and subsequent price adjustments were similarly short-lived on - 13 - account of the continuation of inflationary pressures. "The government also failed to reform the agricultural credit system so as to improve the flow of credit to producers" (PCR, para. 19). As with many other countries faced with similar problems, the authorities, in the interest of 'political realism," have tended in their pricing policies to defer to consumer groups, especially in the urban centers, to the detriment of producers' interests. E. Public Investment and Financing 32. Another major objective of the adjustment prograrA supported by the loan was "the maintenance of a realistic public investment and financing program, geared to productive projects while still maintaining ade- quate levels of investment in social and transport infrastructure consistent with the needs of the country" (Loan Agreement Schedule 2). The short-term aim was the control of public investment as part of the stabilization objective, but drastically reducing the level of investment can hardly be part of the mediumr-term adjustment which seeks to restore the economy to longer-term growth partly through a better saving and investment effort. In the case of Bolivia, however, the boom in mineral and petroleum prices in the mid-seventies, aided by over-extended foreign borrowing, had given rise to increased public sector investment, much of it in capital intensive over-designed and subsequently underutilized equipment, often with inappropriate technology. Since a great deal of the public investment took place in autonomous or semi-autonomous public corporations with independent access to foreign capital markets, the aim of controlling and rationalizing public investment went hand-in-hand in the program design with monitoring the investments themselves as well as foreign indebtedness. 33. As the PCR (para. 21) states, the Government had submitted a public investment and financing program covering the period 1980-83 which was described in the President's Report (para. 40) as 'realistic in terms of mag- nitude, composition and the Government's ability to finance it." As compared with 1979, the 1980-83 proposed program would double the share of the primary sectors in total investment from about a quarter to a little under a half, reducing the shares of industry, transport and the social sectors (education, urban and housing, basic sanitation and health and social welfare). While the intention was to weed out unproductive projects and give priority to projects nearing completion, total public investment was projected to grow moderately in real terms but to remain well below the high levels achieved in 1976-79. - 14 - Table 2: Planned Changes in the Structure of Public Investments (at Constant 1980 prices) Programed 1979 Total 1980-83 z z Primary Sectors 24.8 44.6 (Agriculture) (7.6) (12.2) (Mining) (8.3) (14.6) (Hydrocarbons) (8.9) (17.8) Industry 10.0 6.4 Energy 11.1 9.5 Transp. & Communications 24.5 19.7 Social Sectors 29.6 19.8 Total 100.0 100.0 Source: President's Report, Table 4, p. 16. - 34. The President's Report also showed that the current surplus of the consolidated public sector would turn from a deficit in 1979 to a projected surplus from 1980 onwards, with the "rest of the public sector' showing surpluses throughout the period, and the central government reducing its deficit in 1980, but creating surpluses from 1980 onwards.15/ 35. Contrary to the expectations of the President' s Report about the feasibility of the program, the PCR judges the program as having been based on over-optimistic assuiwtions." The unit to be established at the Ministrv of Planning and Coordina -on to control and monitor expenditures of the main public enterprises (PresideAt's Report, para. 42) appears to have failed. In retrospect, far from rising. public investment fell precipitately in 1980. As compared with 11.5 per cent of GDP projected in the investment program it amounted only to about 6 per cent whereas it had been 10 per cent in 1979. The major factor behind the deterioration was the decline of the resources available to the Central Government. While current expenditure soared, revenues dropped sharply in real terms due to a drop in import duties, and a decline in the tax base for incomes and mineral exports. F. Loan Disbursement and Procurement 36. The PCR very adequately covers these aspects of the operation and this memorandum has little to add in this regard. It remains to be said, 15/ President's Report, Table 5, p. 17. This is to be contrasted with the PCR's statement (para. 21) that the central government's savings were projected to become positive by 1983. - 15 - however, that the proceeds of the loan were a valuable addition to Bolivia's meager foreign exchange earnings in 1980 and without these, imports and pro- duction would have further declined. The audit is satisfied that the loan proceeds were not used to support imports on the negative list (Loan Agree- ment, Annex to Schedule 1), but, as mentioned in various audits before, funds are fungible, and negative lists, though useful, are not always essential. Information was obtained from the Treasury and from the Ministry of Coordina- tion about the allocation of counterpart funds to priority projects as the Loan Agreement had specified, and again the audit is satisfied that that was performed in conformity with the loan conditions. The only disturbing aspect here, however, was that data could not be obtained by the OED mission about the sectoral allocation of investment funds in recent years, including those financed by non-Treasury sources, covering the consolidated investment of all the public sector. This failure reflects specifically the failure to strengthen the monitoring and control mechanism at the Planning Ministry in respect of public investment, which had been one of the reforms agreed under SAL. G. Debt Monitoring and Control 37. As the President's Report had pointed out (paras. 18-19), Bolivia's public external debt, both mediumr- and long-term, had grown rapidly in recent years, helped by its improved creditworthiness during the mineral boom of the Seventies. Between 1974 and 1979 such debt had risen from US$630 million or 28 per cent of GDP to about US$2 billion or 40 per cent of GDP. Particularly on account of the shorter maturities and high interest rates of much of the more recent borrowing, the debt service ratio had saarply .-lsen to about 31 per cent in 1979, as compared with 11 per cent in 1974 (President's Report, para. 18). The 1980 stand-by agreement with the IMF and the World Bank SAL agreement had been associated with a major debt rescheduling exercise with foreign commercial banks from which Bolivia had heavily borrowed. The failure of subsequent agreement with the Fund for another stand-by and possible extended access to Fund resources, despite a number of attempts, and the abandonment of the SAL have largely inhibited the flow of further finance from this source, though there has been notable support from some of Bolivia's important regional creditors. Despite a number of debt reschedul- ing arrangements with foreign creditors, arrears on capital repayments mounted. Both rescheduled debt and capital arrears increased from US$11 million in 1979 to US$89 million in 1980 and again to US$115 million in 1981 and were estimated at about US$200 million in 1982 (see IMF, Supplement to the Staff Report for the 1982 Article IV Consultations (SM/82/137) p. 4). In August 1980 Bolivia reached agreement with a consortium of foreign commercial banks to defer service payments of US$172 million on liabilities maturing mostly in 1980, and was later to negotiate similar agreements including a rescheduling agreement for US$459 million in April 1981 which incorporated the earlier agreement. Without debt rescheduling, the ratio of mediumr- and long-term debt service to exports of goods and non-factor services which was 17.6 per cent in 1976, would have been 42 per cent in 1980.16/ Duriug the 16/ See IMF, Bolivia - Recent Economic Developments, op. cit., Appendix II, p. 58. - 16 - three-year period 1980-82 the deficit on capital account in the balance of payments is estimated to have aggregated over US$700 million, and the loss of foreign reserves US$500 million. 7/ At present, Bolivia finds itself unable to procure fresh foreign capital inflows of a magnitude sufficient to eliminate its current crisis. 38. As the SAL had envisaged, progress has been made, especially at the Central Bank, to monitor existing debt and its servicing, especially as many entities which had traditionally had independent access to foreign sources of borrowing, were forced by the wide gap between official and free market exchange rates to channel service payments through the Central Bank. Since the inception of SAL, marked progress has been made to record debt obliga- tions and to computerize these, but understandably owing to the persistent crisis no effective mechanism for managing new indebtedness has yet evolved. E. The Technical Assistance Component 39. In line with other SALs the operation contained a program of studies of key areas of the economy, intended to shed light on various policy reforms. Part B of the project, as described in Schedule 2 of the Loan Agreement, covered: 'The execution of studies in the following fields" (i) structure and level of taxes on the mining sector and specific incentives aimed at encouraging investment in such sector; (ii) key problems of, and constraints to, agricultural exports; and (iii) prefeasi- bility of projects in agriculture and mining sectors." Out of the loan's proceeds US$1.3 million was earmarked for these studies. The Letter on Development Policies referred under -Reform of Mineral Taxa- tion' (para. 6) to the necessity of "updating of presumed costs" of the mineral producers (used as a basis for calculating imputed profits) and establishing an adjustment factor for presumed costs based on the floor price of the International Tin Council and pointed out that the Government consi- dered that it needed "further analysis of, and possible action on, the for- mula to update presumed costs, the provision of specific tax incentives and overall level of mineral taxation." Similarly for agriculture the government intended (para. 7) t- take further action on adjusting farm gate prices for agricultural products, including coffee, and the gradual introduction of dif- ferential pricing for quality beef. A pilot experiment would be mounted in this regard before a national pricing program was decided upon so that prices were set and periodically adjusted, which would provide adequate incentives for producers to export. The -Government expect[ed] that the findings of the Bank supported study would provide the framework for export-promotion pro- grams and relevant institutional measures" (Letter of Development Policies, para. 7). 17/ Table in IMF Supplement to the Staff Report for the 1982 Article IV Consultation as updated by the Audit Mission. - 17 - 40. Not only would the studies benefit policy formulation for taxation and pricing in the mineral and agricultural sectors with the purpose of promoting exports, but they would also help to rationalize and adjust the public investment and financing program. Criteria had been set to weed out lower priority projects and to concentrate on projects nearing completion and those contributing directly to exports, and the government expected that "the feasibility reports to be financed by the World Bank [would] help improve the quality of public investment in the future, particularly in agriculture, mining and hydrocarbons sectors through identification of high priority proj- ects" (Letter on Development Policies, para 9). 41. In the President's report the reforms of mineral taxation were said to require 'several years" as the system would be rationalized to increase incentives for exploration and development of low grade ores; to increase land taxes substantially; and to incorporate relevant costs in the adjustment factor for presumed costs. "Financing would be provided from the proposed loan for a study to analyze these and other aspects of further tax reform... The study would also analyze the level of mineral taxation in Bolivia" (para. 26). The government was also said to be seeking guidance for setting agricultural prices and "[a] small proportion of the proposed loan would be used to carry out a study of the institutional and marketing support that would be needed for promoting agricultural exports" (President's Report, para. 27). Details were given in the President's Report (para. 47) about the use of funds for these studies. 42. Implementation was a little different from plans. The UNDP came forward with additional funds for studies in support of the structural adjustment program (PCR, para. 26) and eventually the efforts of the two agencies were merged, with the Bank acting as the executing agency. Under this arrangement it was possible to finance ten studies in all, with the entire amount for technical assistance under SAL allocated to a major study for the reform of COMIBOL. Even though the project document of the UNDP project (BOL/80/005) was only signed in January 1981, well after the release of the second tranche, the UNDP funds were used to finance retroactively some of the studies already completed. A list of the studies completed under this project appears as Annex 2. The focus was on monitoring and evaluation of public investment, stimulating investment in the mining sector and reforming the antiquated and inhibiting system of mining sector taxation. 43. The sum of US$1.3 million was fully disbursed by end-1981. It went (in conjunction with US$900,000 from UNDP and US$1 million equivalent from the borrower) to finance a US$3.2 million study of the public sector corpora- tion COMIBOL, the largest mineral entity in Bolivia, responsible for employing 26,000 people directly as well as 10,000 cooperative workers. COMIBOL, three-quarters of whose operations involve tin, had been accumu- lating debt and realizing growing deficits. The purpose of the study was to rehabilitate this corporation administratively and technically. The COMIBOL study which emerged on completion in thirteen volumes, was not completed until early 1982, and its recommendations, which focused on rationalizing its operation, have been opposed by the strong Federation of Mineworkers who have - 18 - objected to dismissing redundant labor and closing down unproductive sites. With a declining world tin market, the financial position of COMIBOL has become very grave, but the SAL technical assistance component has indicated many necessary reforms which might be taken up in a subsequent Bank operation. 44. Some of the studies carried out have been disappointing (par- ticularly a study of the export and investment laws which Was intended to simplify these in the interest of greater production and exports), but others, especially for agricultural marketing and credit have been useful and already used, if not to reform current practices, but to indicate reforms, and have been incorporated in the Bank's economic work. Although the PCR is correct in indicating the utility of many of these studies for future action (para. 26), and despite the impact generated by them on policy thinking, it should be stressed that 'no action has yet been taken on the studies' recom- mendations" as the PCR puts it. In retrospect, the high expectations set on these studies both in the President's Report and in the Borrower's letter on development policy did not materialize, particularly as a means "to improve the quality of public investment", to "set up the control system over public enterprises at the Planning Ministry", and to 'pointing out a framework for export promotion programs with relevant institutional measures." A worth- while effort to strengthen the Ministry of Planning and Coordination's monitoring and evaluation of public sector investment, initiated under SAL and supported by technical assistance, came eventually to nothing owing partly to political instability. I. The Bank's Lending Program 45. The SAL was the last operation mounted by the Bank in Bolivia. The Bank, however, has not been inactive in Bolivia and has maintained an office in La Paz until the time of writing. During the recent past it has had some dialogue with the authorities, and continued to supervise the implementation of projects, including the SAL itself. The IMF has been equally active, with its own resident mission providing advice and conducting consultations periodically, and several times has attempted to work out an agreed program to be supported by a possible Stand-by. These efforts have faltered, however, largely on account of the absence of political stability that must prevail in order that difficult economic decisions can be made. 46. The Bank, having decided in 1981 that Bolivia was uncreditworthy for Bank lending, had refrained from processing further loans. However, it made an advance of US$1 million from the Project Preparation Facility in March 1981 to support preparation of a possible future gas project (the Vuelta Grande Project) - a follow-up on a World Bank Gas and Oil Engineering Project, begun in 1980. The importance of gas development and export for Bolivia cannot be exaggerated and likely future operations by the Bank will cover this vital sector. Meanwhile, now that the SAL effort has lost its momentum, and despite the many valuable insights that have been gained both in the Bank and in Bolivia about subsequent structural adjustment, it is probable that no further SAL operations will be started in Bolivia for some time to come. - 19 - J. Timing of Mid-Term Review 47. In assessing the feasibility of SAL, the President's Report high- lighted two risks, namely (a) the ability of the Government to sustain its determination for reform in the face of opposition, particularly from trade unions as well as others; (b) the possibility of a change of government as elections were planned for June 29, with the new government expected in August, 1980 (President's Report, para. 55). The fact that there had been relative political stability in the period 1972-78 and the chance of exer- cising leverage at the time of releasing the second tranchel8/ tipped the scales in favor of the loan. But as will be argued below the opportunity for a careful assessment was not effectively exploited at the time of the second tranche release. Paragraph 1 of the PCR says: "Release of the second tranche was made contingent on endorsement of stabilization policies associated with the loan by a newly elected government, scheduled to take office several months after the first tranche was disbursed." [Emphasis added.] The new administration's support was to be ensured not just for the short- term "stabilization program" but for both the short- and mediumrterm pro- grams. And mounting the review mission in August 1980, did not allow the "several months" referred to in the above-mentioned quotation. 48. The Loan Agreement was signed on June 18, 1980, barely two weeks after Board presentation. The loan became effective on June 25. Before the release of the second tranche the Loan Agreement (Section 3.06) had mandated "an exchange of views" between Borrower and Bank, not just on stabilization measures, but "in respect of each of the policies adopted and the legal and administrative measures taken or to be taken as a consequence of such policy in order to carry out the Economic Recovery Program." Such an exchange of views was strangely fixed in time, as it had to take place "during the las- calendar week of August 1980." A new administration was expected to assume power in August anyway, and it was essential for the program that it should be endorsed by the new government. The last calendar week in August did not provide adequate time for monitoring progress, obtaining this endorsement and seeing to it that the program continued to be implemented. It is significant that the Bank chose not to avail itself of the opportunity to delay the requisite review, although that option was made available by the Loan Agree- ment itself which in Section 3.08 had added after the timing of the August review the phrase "or such later time as shall be agreed between the Borrower and the Bank." 18/ On this latter point see the penultimate sentence of para. 55 of the President's Report which reads: "Bank staff review for the second tranche would provide an opportunity for a careful assessment of the new administration's short- and mediur-term economic policies and its ability to implement these policies." - 20 - 49. At .he time the review mission visited Bolivia (Augtat 14-27, 1980) the loan had not been ratified by Congress and the scheduled ratification after August 6, when the new Congress would have convened, became unlikely as the military took over on July 18. In its report dated September 18 the mission addressed itself to the treas covered by the program, namely, (a) maintenance of export competitiveness; (b) the public investment and financing program; (c) external debt management; (d) rationalization of mining sector taxation; (e) causing exportable agricultural commodities to have domestic prices in line with international ones; (f) strengthening the mechanism of control and monitoring of the expenditures of public enter- prises. With scarce data, complex and unclear developments and the limited purview imposed on it by its timing, the mission recommended that the second tranche be released after having judged that -while progress has been slower than expected in certain areas of the program, in most cases performance has been satisfactory-, but added the condition: "provided the government takes certain action in those areas, where performance had been less than ade- quate.19/ 50. Though performance was seen as having been sufficiently adequate to justify continuation of Bank support (para. 16), the record was -too mixed for an unequivocal positive judgement- (para. 15). Prior conditions for release of the second tranche were spelled out in the final paragraph, viz. Ca) definition of an action program leading to a substantial adjustment of tariffs charged by the public enterprises for power and for railroads; (b) definition of new priorities for public investment and formulation of a financing plan based on increased public savings; (c) endorsement by the new government of the Borrower's commitment as expressed in the letter of Development Policies and in the Loan Agreement; and (d) providing the Bank with legal documentation to satisfy the loan's conditions of effectivo'ness. 51. The same recommendation was transmitted by the Region's management to senior management by a memorandum on file dated September 23, 1980, para. 12 of which contained the following statement: -To summarize, while the performance has been generally satis- factory in most parts of the economic recovery program it has been inadequate in the area of public sector investment and resource mobilization. In view of the importance of this component of the program, I recommend that the second tranche of the loan not be 19/ Memorandum on file dated September 18, 1980, "BOLIVIA - Structural Ad- justment Loan: Results of Performance Review-, para. 1. - 21 - released until some prior remedial action is taken in this area.- [Emphasis added] 52. According to files, a Bolivian delegation visited the Bank in early October, and a satisfactory letter came from the Minister of Finance reiterating government commitment.20/ This was considered -a promising basis for a dialogue with the new Government- (memo dated October 6, 1980) which it was thought, might be conducive to a second bAL. On October 28, Bank management authorized the release of the second tranche, and on November 18 a memorandum was sent to the Executive Directors (Sec M80-853) to that effect. In this memorandum management mentioned that -since the August mis- sion the government has initiated measures to accelerate execution of priority investment projects and has initiated the necessary steps to raise public sector tariffs in the very near future- (para. 2). It also referred to the IMF stand-by in the following terms: 'Performance under the IMF stand-by agreement has been satisfactory through the second quarter. An IMP mission is currently in Bolivia to review whether ceiling/targets for the third quarter have been meat (para. 2). 53. The satisfactory progress under the Fund's stabilization program referred to above covered the period to end-June, i.e., before the release of the SAL's first tranche. Though in August 1980 the Fund was to release the third tranche, according to Fund staff such release signified the observance of the agreed ceilings and did not necessarily imply the satisfactory imple- mentatiou of the program. But progress obviously became so unsatisfactory afterwards that the fourth tranche was never released and the stand-by abandoned. 54. One conclusion emerges clearly from this experience: the timing of the mid-term review mission was ill-designed to monitor compliance with loan conditions, and once the second tranche was disbursed there was no leverage left, considering also the absence of subsequent Bank lending. The clause in the loan agreement giving the Bank the power to delay the mid-term review was not invoked. However, Bank management rightly took some time attempting to enlist the support of the new government for the program which it succeeded in doing before the release of the tranche in November. Later, in response to an enquiry by an Executive Director the Region emphasized that the tranche 20/ The letter, dated October 8, 1980, included the intention of the Govern- ment to set public sector tariffs so as to ensure the financial viability of major public enterprises, and the establishment of an inter-ministerial commission to examine this issue in detail. Reforms were promised 'in the very near future" for the railroads and before the end of 1980 for the power corporation. - 22 - was released after the Bank was satisfied that Bolivia was in substantial compliance with the terms stipulated for such release in the Loan Agreement. .-21/ V. CONCLUSIONS AND LESSONS 55. In the light of the foregoing the operation can be judged, on balance, not to have been a success. The PCR rightly concludes that the accomplishments of the Structural Adjustment Loan were shortlived." The effects of the measures taken prior to SAL's initiation and sustained for a short period afterwards eroded quickly in a deteriorating political environ- ment.- -As a result the SAL program did not generate a discernible positive effect on the performance of the economy- (para. 29). The components of the program were correctly identified: structural reforms in mining taxation, agricultural prices and public investment, a resource mobilization effort, an exchange rate that would maintain export competitiveness and a variety of stabilization measures. Once stabilization got out of hand and public sector deficits mounted, however, the rest of the program was seriously undermined, especially as there was reluctance to adjust the exchange rate despite mount- ing inflation. A decline in the terms of trade after 1980, though not deci- sive, did contribute to a deteriorating environment, particularly character- ized by government inability to face economic reality by taking unpopular decisions. 56. The PCR states that political risk was envisaged at the time the loan was conceived, but that at the time, however, there was reason to believe that these risks were remote... (para. 30). The audit concludes that such risks, far from being remote, were indeed close and real, and tte President's Report had clearly indicated that tranching was deliberately chosen to guard against such risks. The Region failed to use the tranching process with its mid-term review seriously in an effort to reduce these risks as the President's Report had intended it to be so used. But once the second tranche had been released, the SAL program had for all practical purposes come to an end. In this regard it is difficult to accept the conclusion of the PCR that any gains were in fact made during SAL's execution (para. 31, last line), though progress may indeed have been made prior to the SAL's initiation, especially as the release of the second tranche in November 1980 was followed in April 1981 by the decision in the Bank that Bolivia had ceased to be creditworthy and that no further SALs would be considered (PCR, para. 14). 57. Besides the political aspects there were also weaknesses in design which are candidly mentioned by the PCR. Despite the correct identification of the package that made up the program, the program failed to set in motion a process for reforms. In the words of the PCR (para. 12): 21/ Memorandum on file dated January 22, 1981. - 23 - -The SAL did not ... sponsor or establish, in either the productive sectors or the central bureaucracy, any integrated programs which directly addressed structural change. The closest approximation to such a program was a review of current and planned public sector investment, a change in [the] mining tax system and a study to determine the institutional and marketing support needed for pro- moting agricultural exports. No systematic procedures were set up, however, to ensure that future investment programs were appro- priately analyzed and executed, or that the recommendations of the agricultural studies were carried out." The same lack of process characterizes other parts of the program, notably the management of external debt, the encouragement of private saving, the containment of public sector deficits and the promotion of exports. The fact that the operation had started as a Program rather than a Structural Adjust- ment Loan may be behind these shortcomings, but it does not explain them away. A great deal of preparation is necessary to guide a structural aajust- ment process, and such preparation had not been undertaken.221 58. Two lessons stand out from this experience. First, the political environment surrounding a SAL program should receive careful analysis, and where tranching is perceived as a safeguard against the political risk involved and also to ensure that the agreed programs are appropriately imple- mented, it should be taken seriously. Second, even if the elements of a medium-term adjustment process have been correctly identified, as in the case of this operation, there must be, in addition, a carefully delineated, time- bound, implementation schedule where targets are defined and the process to achieve them are worked out in detail. The supervision of program implemen- tation in this case suffered fundamentally from the absence of such detailed planning. 22/ The Region further argues that this was the first operation in a series which would have expanded gradually on the initial measures and that the institutional reforms had intentionally been kept within the absorptive capacity of the public administration system and until the results of the studies initiated under SAL I had clarified the necessary reforms. - 24 - ANE 1 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) Statistical Annex Table 1 - Composition of Expenditure on Gross Domestic Product 1979-83 Table 2 - Expenditure on Gross Domestic Product 1979-83 Table 3 - Year-to-Year Percentage Change in Expenditure on Gross Domestic Product 1979-83 at constant 1970 Prices Table 4 - Public Sector Deficit 1978-1982 Table 5 - Annual Inflation Rates 1971-1983 Table 6 - Exchange Rates 1976-1983 Table 7 - Summary Balance of Payments 1979-1982 Table 8 - Merchandise Exports 1978-82 Table 9 - Outstanding External Debt by Initial Maturity at Year-End 1976-82 - 25 - ANNE 1 Table 1 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) Composition of Expenditure on Gross Domestic Product 1979-83 (per cent at current prices) 1979 1980 1981 1982 /a 1983 /b GDP 100.0 100.0 100.0 100.0 100.0 Gross Domestic Investment 19.9 13.1 11.4 8.7 12.8 (Fixed Capital Formation) (17.1) (13.5) (10.6) (10.6) (12.8) (Change in Stocks) (2.8) (-0.4) 0.8 -1.9 - Consumption 84.6 86.5 93.1 88.9 94.6 (Public Consumption) (11.9) (14.8) (14.7) (11.5) (9.5) (Private Consumption) (72.7) (71.7 (78.4) (77.4) (85.1) Total Domestic Absorption 104.5 99.6 104.5 97.6 107.4 Resource Balance -4.5 +0.4 -4.5 +2.4 -7.4 (Imports of Goods & Services) (-21.7) (-20.1) (-19.9) (-23.8) (-28.5) (Exports of Goods & Services) (17.2) (20.5) (15.4) (26.2) (21.1) /a Preliminary /b Estimate Source: Central Bank of Bolivia - 26 - ANNEX 1 Table 2 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) Expenditure on Gross Domestic Product 1979-83 (millions of Bolivian pesos at 1970 prices) 1979 1980 1981 1982 /a 1983 lb GDP 19,104 19,212 19,010 17,271 16,193 Gross Domestic Investment 3,169 2,358 1,966 1,094 1,341 (Fixed Capital Formation) (3,017) (2,419) (1,851) (1,344) (1,341) (Change in Stocks) (152) (-61) (115) (-250) (-) Consumption 16,211 17,229 17,054 15,268 14,117 (Public Consumption) (2,521) (2,559) (2,559) (2,132) (2,123) (Private Consumption) (13,690) (14,670) (14,495) (13,136) (11,994) Total Domestic Absorption 19,380 19,587 19,020 16,362 14,458 Resource Balance -276 -375 -10 909 735 (Imports of Goods & Services) (-3,647) (-3,423) (-3,040) (-1,982) (-1,936) (Exports of Goods & Services) (3,371) (3,048) (3,030) (2,891) (2,671) /a Preliminary /b Estimated Source: Central Bank of Bolivia -27 - ANNEX 1 Table 3 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) Year-to-Year Percentage Change in Expenditure on Gross Domestic Product 1979-83 at Constant 1970 Prices 1980 1981 1982 /a 1983 /b GDP 0.6 -1.1 -9.1 -6.2 Gross Domestic Investment -25.6 -16.6 -44.4 22.6 (Fixed Capital Formation) -19.8 -23.5 -27.4 -0.2 (Change in Stocks) a Consumption -5.9 -1.0 -10.5 -7.5 (Public Consumption) 1.5 0.0 -16.7 -0.4 (Private Consumption) 7.2 -1.2 -9.4 -8.7 Total Domestic Absorption 1.1 -2.9 -14.0 -5.5 Resource Balancee (Imports of Goods & Services) -19.8 -23.5 -27.6 -0.2 (Exports of Goods & Services) -9.6 -0.6 -4.6 -7.6 /a Preliminary /b Estimate Source: Based on data of Central Bank of Bolivia. -28 - ANNEX 1 Table 4 PROGRAM4 PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) Public Sector Deficit 1978-1982 1978 1979 1980 1981 1982 (In million $b) Central Goverrment 3,838.8 6,594.3 8,848.1 10,646.6 52,822.8 Rest of the Public Sector 3,969.0 1,178.8 2,677.8 1,372.2 20,157.0 Total Deficit 7,808.8 7,773.1 11,161.9 11,978.8 72,979.8 Adjustment items -610.1 487.1 -254.9 234.5 - Finance 7,198.7 8,260.2 10,907.0 12,213.3 72,979.8 of which Foreign 4,374.1 3,134.9 6,040.3 7,573.5 1,787.7 Domestic 2,824.6 5,125.3 4,866.7 4,639.8 71,192.1 Deficit as x of GDP 10.2 8.4 8.7 7.2 18.2 Source: "General Aspects of the Bolivian Economy' External Finance Department of the Central Bank of Bolivia (mimiographed and undated) circa late 1983. -29 - ANNEX 1 Table 5 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUS7bMENT LOAN (LOAN 1865-BO) Annual Inflation Rates Implicit GDP Consumer Deflator /a Prices /b 1971 4.4 3.6 1972 20.4 6.5 1973 41.6 31.6 1974 58.1 62.7 1975 6.5 8.0 1976 8.1 4.5 1977 10.9 8.0 1978 13.4 10.3 1979 18.2 19.8 1980 38.9 47.3 1981 30.5 32.1 1982 165.3 123.6 1983 239.8 la Calculated on the basis of Bank of Bolivia's estimates of GDP at current and at 1970 prices. lb Based on data in IMF, International Financial Statistics - 30 - ANNEX 1 Table 6 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) Exchange Rates 1976-1983 Official Rates Free Market Rates Par Rate/Market Rate -~-Pesos Bolivianos per US Dollar----- .1976 20.00 1977 20.00 1978 20.00 1979 20.39 1980 24.51 1981 24.51 32.50/a 1982 64.12 119.20/b I (36.94) 45.47/c II (43.18) 89.47/c III (43.18) 187.73/c IV (133.17) 224.00/d 1983 196.00 - I (196.00) - II (196.00) - III (196.00) - IV (196.00) 1,O0O.00/e /a Average of monthly averages for the five months August-September 1981. /b Average of monthly averages for the ten months January-October 1982. /c Average of monthly averages in each of the quarters cited. 7rd Monthly average for October 1982 only. /e As observed by the Audit Mission in La Paz during November 1983. Source: IMF, International Financial Statistics for the official rate and IMF, Staff Report for the 1982 Article IV Consultants (SM/82/137), for the free market rate (except for 1983). - 31 - ANNEX 1 Table 7 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) Summary Balance of Payments 1979-82 /a 1979 1980 1981 1982 (in millions of US dollars) A. Current Account /b -358.0 -118.8 -286.1 -93.3 Merchandise Exports fob 761.6 941.8 913.3 827.7 (Crude Petroleum and Gas) (149.0) (220.7) (339.4) (381.5) (Metals) (579.5) (621.7) (469.3) (354.3) (Other) (33.2) (99.3) (104.6) (91.9) Merchandise Imports fob -815.1 -680.6 -681.8 -428.7 Trade Balance -53.5 261.2 231.6 399.0 Other Goods and Services and Income net -356.5 -435.9 -556.0 -537.0 Unrequited Transfers 41.9 55.8 38.3 44.7 B. Direct Investment and Other Long-Term Capital /c 257.9 52.3 337.8 164.6 C. Other Short-Term Capital /c 37.9 18.5 -49.9 -167.5 D. Net Errors and Omissions -28.7 -261.5 -320.8 -34.0 E. Counterpart Items, Exceptional Financing and Liabilities Constituting Foreign Authorities' Reserves 114.1 175.3 344.3 170.3 F. Total Group A-E 23.3 -134.1 25.4 40.2 G. Change in Reserves /d -23.3 134.1 -25.4 -40.2 /a Aggregated Presentation; original data in SDRs, converted to US dollars at average period rates as shown in International Financial Statistics. Figures may not add up to totals because of rounding. /b Excluding exceptional financing. /c Excluding exceptional financing, liabilities constituting foreign authorities' reserves and change in reserves. /d (-) means increase. Source: IMF, Balance of Payments Statistics, '7olume 34, Yearbook, Part I, 1983. -32 - ANNM I1 Table 8 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) Merchandise Exports 1978-82 (CIP value in millions of US dollars) 1978 1979 1980 1981 /a 1982 /a Minerals 515.6 591.9 641.1 556.0 419.4 (of which tin) (374.2) (395.6) (378.1) (343.1) (278.3) Natural Gas 78.5 105.0 220.9 336.7 381.6 Crude Petroleum and Liquid Gases 43.7 44.7 24.3 9.8 16.8 Non-traditional Products 87.5 115.6 149.9 92.8 80.4 (of which coffee) (16.7) (19.7) (20.8) (15.8) (15.5) (of which wood) (12.6) (21.7) (31.1) (18.0) (11.6) (of which sugar) (14.2) (30.8) (51.2) (5.7) (8.1) TOTAL 725.3 857.2 1,036.2 995.3 898.2 Tin as Z of total 51.6 46.2 36.5 34.5 31.0 /a Preliminary Source: Central Bank of Bolivia, Division of Economic Studies, 'Statistical Bulletin No. 247, June 1983. -33 - ANNEX 1 Table 9 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) Outstanding External Debt by Initial Maturity at Year-End /a 1976-1982 More than Total Up to 1 year 1.1 - 5 years 5.1-10 years 10 years 1976 1,127.0 20.2 190.2 177.6 739.0 1977 1,515.3 57.6 282.1 332.5 843.1 1978 1,849.6 88.1 149.4 634.5 977.6 1979 2,004.9 64.2 114.7 753.9 1,072.1 1980 2,294.8 74.6 137.4 726.1 1,356.7 1981 2,582.6 40.6 191.0 769.8 1,581.2 1982 2,629.9 n.s. n.a. n.a. n.a. /a Defined as outstanding disbursed pLblic and public,v guaranteed debt repayable in foreign and local currency, excluding short-term debt of the financlal sector. Source: MIF, Bolivia - Recent Economic Developments, (SN/82/162) dated August 9, 1982, Appendix It, Table 16, and Cen -'al Bank of Bolivia, Departuent of External 2inance, "General Aspects of the Bolivian Economy', not dated, Table 6. _34 - ANNEX 2 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA.STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) List of Studies Completed Under The Technical Assistance Component SUBJECT REPORT TITLE Fiscal Policy Development of Indices for Mining and Non-Mining Costs for Bolivia Economic Data Base for Bolivian Mines (Data User's Manual) Implementation of a Revised Bolivian Mineral Tax Policy Presentation of Bolivian Mining Costs and Cost Index Strengthening of Systems Reforming the Management of the Public Sector Enterprises Export Promotion Report to the Government on Foreign Trade Policy Analysis of the Basis for Reforming the Investment Law and the Policies Behind It. Strengthening of the Financing Systems for Investments and Productive Activities Bolivian Refinancing Fund Export Promotion Foreign Trade and the Agricultural Sector in Bolivia Assistance to the Bolivian Mining Corporation A Critical Analysis of Past and Present Efforts -35 - ANNEX 3 Page 1 PROGRAM PERFORMANCE AUDIT REPORT BOLIVIA STRUCTURAL ADJUSTMENT LOAN (LOAN 1865-BO) LETTER ON DEVELOPMENT POLICIES April 1, 1980 Dear Mr. McNamara, 1. Bolivia is currently facing an economic crisis which has been aggravated by delay in the adoption of corrective measures. The current account deficit of the balance of payments in 1979 amounted to about 10.5Z of GDP, compared to a surplus of about 6; in 1974. This deterioration reflects a decline in export volumes, a rapid increase in imports, and increased interest payments resulting from the growth of external debt. On the fiscal side, the rapid expansion in public investment during 1975-78, particularly in capital-intensive processing plants, and the decline in the operating sur- pluses of the major public enterprises led to a severe disequilibrium. The overall balance of the public sector moved from a small surplus in 1974 to a deficit of about 10.5Z of GDP in 1979. Real GDP growth, which had averaged over 5.-5 for the period 1970-77, amounted to culy 3.3Z and 2.1%, respec- tively, during 1978 and 1979. At the same time, the rate of inflation, as measured by the GDP deflator, accelerated from an average of about 10% during 1975-77 to about 17% in 1978 and 19% in 1979. 2. The Government of Bolivia has formulated an integrated economic recovery program, of which important initial measures have already been taken. The program is aimed at (i) removing short-term domestic and external imbalances, and (ii) reducing or eliminating major structural problems which have affected this country's 'economic growth performance over the past several years. The main componsents of the program are the following: (a) Economic and Financial Stabilization Program; (b) Specific Measures for Export Promotion; (c) Public Investment and Financing Program. Economic and Financial Stabilization Program 3. On November 30, 1979, the Government took a series of economic measures aimed at reducing the fiscal and balance of payments deficits. one such measure was the replacement of the fixed exchange rate of US$1 - $b20 by a new exchange rate regime based on a managed float, set initially at -36 - ANNEX 3 Page 2 US$1 = $b25. This implied a depreciation of 25%. In the future, the ex- change value of the peso will be determined in relation to the net inter- national reserve position of the Central Bank and the relationship between domestic and foreign costs. Another measure was the increase of about 100%, on average, in the prices of petroleum derivatives sold in the domestic market. This measure will not only improve the financial situation of the public sector, but also help to dampen domestic demand for hydrocarbons, thereby increasing the quantity available for export. The Government is willing to consider the formulation of further action in this area. In the area of monetary policy, we have eliminated dollar-denominated peso deposits, and have restructured the system of interest rates and legal reserve require- ments to encourage the growth of peso-denominated savings. The program also includes ceilings on net domestic borrowing of the public sector from the banking system, and on the magnitude of external borrowing of less than 10 years' maturity as well as targets for the levels of international reserves. These measures formed the basis for an agreement with the IMF for a one-year stand-by arrangement, which was approved by the IMF Board on February 1, J980. 4. As a result of the rapid growth in external debt and the poor ex- port performance of the last several years, external debt service payments have risen sharply in relation to exports. We are negotiating a debt re- financing operation with a number of foreign commercial banks. Our objective is to arrange for a refinancing loan of about US$200 million, which would be used to repay some of the Central Bank and COMIBOL short- and medium-term loans. Specific Measures for Export Promotion 5. Bolivia's overall merchandise exports have experienced no real growth between 1974 and 1979. To a large extent, this poor performance has been the consequence of an overvalued exchange rate, inappropriate domestic pricing policies for hydrocarbons and agricultural products, lack of specific incentives for agricultural exports, and an inappropriate structure of mineral taxation. It is the Government's intention to reverse this tendency and to pursue policies that will foster the development of exports in indus- tries in which Bolivia can be an efficient producer. In addition to the action already taken on the exchange rate and hydrocarbons' prices (discussed in para. 3) and to the increased emphasis on export-oriented projects in the public investment program (discussed in para. 9), the following specific measures for promoting exports have been adopted, or are expected to be adopted in the near future. The two main objectives of these measures are: (i) to allow exports to grow at about 6% per annum in real terms over the period 1980-85, and (ii) to reduce the heavy reliance on exports of tin from over 50X of merchandise exports in 1979 to about 33Z by 1985. A. Reform of Mineral Taxation 6. Bolivia's main export sector, mining, has been negatively affected by a structure of taxation which discouraged exploration and development. - 37 - ANNEX 3 Page 3 The Government has recently adopted a mineral tax reform which includes: (i) the elimination of the export tax; (ii) the updating of presumed costs, and (iii) the establishment of an adjustment factor for presumed costs, based on the floor price of the International Tin Council. In our opinion, these measures initially prov
Группа Всемирного банка · Project Performance Assessment Report
Bolivia - Structural Adjustment Loan Project
Открыть оригинал документа
Полный текст размещён на сайте публикующей организации. lawenc.com индексирует метаданные и ведёт на официальный источник.
Вернуться к постатейному просмотруПолный текст
Основные сведения
Организация
Группа Всемирного банка
Тип документа
Project Performance Assessment Report
Страна
Боливия
Источник
Всемирный банк