Friday, July 01, 2005
Bolivia. A Private Sector Assessment
By: The Enterprise Research Institute
For: the InterAmerican Development Bank, 2002
This report reviews the key features of Bolivia’s private sector which, it finds, has developed at a disappointingly slow rate – barely enough to keep pace with the industrial countries and certainly not enough to begin to close the gap. The report begins by examining the key factors of production: land, labor and capital. It finds that land – natural resources on the whole – is somewhat above the world’s endowment and that development of human capital has been below the standard of the rest of Latin America or of the industrial countries. However, it sets out as a tentative conclusion that the real problem has arisen from Bolivia’s slow rate of capital accumulation. It tentatively explains this phenomenon as arising not from ignorance of private technical options or a lack of investment opportunities; but rather to a variety of environmental, legal, and regulatory issues that reduce profitability as well as a profound lack of access to credit that makes it difficult to finance good investment opportunities. This conclusion to some extent runs counter to the popular image of Bolivia as a country where reform has been fully implemented and has failed. However, a central theme of the report is that while Bolivia has implemented trade reform, macroeconomic stability and privatization, it has failed completely to implement meaningful change in the institutions, which underlie private sector development. Finally, the paper turns to policy recommendations. These recommendations focus on improving access to credit by passing a law on secured transactions, and tightening bank supervision and regulations. It focuses on improving infrastructure by investigating a series of changes that would expand privatization and competitive supply. It recommends, for a variety of reasons tied to the institutional nature of the International Finance Institutions (IFIs), that legal, regulatory and institutional reform be an integrated part of most projects and that such reforms be “stockpiled” until they can be attached as conditions to larger policy based loans for the BID, World Bank, and IMF.
For: the InterAmerican Development Bank, 2002
This report reviews the key features of Bolivia’s private sector which, it finds, has developed at a disappointingly slow rate – barely enough to keep pace with the industrial countries and certainly not enough to begin to close the gap. The report begins by examining the key factors of production: land, labor and capital. It finds that land – natural resources on the whole – is somewhat above the world’s endowment and that development of human capital has been below the standard of the rest of Latin America or of the industrial countries. However, it sets out as a tentative conclusion that the real problem has arisen from Bolivia’s slow rate of capital accumulation. It tentatively explains this phenomenon as arising not from ignorance of private technical options or a lack of investment opportunities; but rather to a variety of environmental, legal, and regulatory issues that reduce profitability as well as a profound lack of access to credit that makes it difficult to finance good investment opportunities. This conclusion to some extent runs counter to the popular image of Bolivia as a country where reform has been fully implemented and has failed. However, a central theme of the report is that while Bolivia has implemented trade reform, macroeconomic stability and privatization, it has failed completely to implement meaningful change in the institutions, which underlie private sector development. Finally, the paper turns to policy recommendations. These recommendations focus on improving access to credit by passing a law on secured transactions, and tightening bank supervision and regulations. It focuses on improving infrastructure by investigating a series of changes that would expand privatization and competitive supply. It recommends, for a variety of reasons tied to the institutional nature of the International Finance Institutions (IFIs), that legal, regulatory and institutional reform be an integrated part of most projects and that such reforms be “stockpiled” until they can be attached as conditions to larger policy based loans for the BID, World Bank, and IMF.