Bolivia's hopes are pinned on Luis Arce, the new president-elect of the Andean country. The former Minister of Economy not only obtained the votes of supporters of the Movement Toward Socialism (MAS), his party, but also of those who want to see a repetition of the “economic miracle” that he implemented under the mandate of Evo Morales: almost a decade (2006 -2014) of high growth and poverty reduction. But the current picture is very different. Arce will take power in the midst of an unprecedented economic and health crisis that, specialists agree, will not allow an easy repetition of its success.
The Bolivian economy will fall 7.9% this year due to the crisis caused by the pandemic, according to estimates from the International Monetary Fund (IMF). Its recovery, however, is expected to be accelerated, with an estimated rebound of 5.6% in 2021. "The economic crisis was a central and decisive issue in the contest," says Diego Von Vacano, professor of Political Science at the University of Texas. A&M and advisor to Arce's presidential campaign. That he won with 53% of the votes, according to the preliminary results, indicates that many Bolivians who did not necessarily identify with the MAS gave him their vote, says Von Vacano. "People began to realize that, in a time of coronavirus, when the economic crisis became more acute, it would be better to have an economist with a clear mind to be able to face this," he explains.
With 11 million inhabitants, 34.6% of Bolivians live in poverty and 12.9% in extreme poverty. As in the rest of the Latin American countries, the pandemic is expected to push many more of the middle class down. Arce's economic plan ensures that, through support to the agricultural sector, his government will guarantee food security.
From La Paz, the economist Napoleón Pacheco believes that if Arce “has projected that image of a good minister, of good management, this is explained by an extraordinarily favorable external context. Evo Morales came to power at a key moment, in which the Brazilian gas market was already open, after 20 years of Bolivian negotiations to sell in it. There was a constellation of favorable factors without which Bolivia would not have been able to take advantage of the commodity price boom ”. This gave Arce extraordinary resources to cover the country's chronic fiscal overspending, explains the expert, which is why there were budget surpluses for several consecutive years until the prices of export goods fell again.
“Then the deficits returned and at no time did Luis Arce want to reverse them, because that implied putting a brake on public investment. His slogan was to face the slowdown in China and the world economy with investment and deficit, ”says Pacheco.
The State as an economic actor
The Bolivian economic model created by Arce considers the existence of two sectors: a "strategic surplus generator", made up of the oil, mining and electricity industries, and a "income and employment generator" sector, made up of the manufacturing industries, the agriculture, construction, tourism, among others. The first sector is in the hands of the State, making it the main actor in the economy. The objective is to transfer surpluses to the second sector to "industrialize natural resources", which has resulted in large infrastructure works and the creation of dozens of other public companies. It also seeks to finance a wide range of social policies.
How will this model be financed now that the export sector can no longer provide the resources it needs? According to Omar Yujra, a member of Arce's group of economic advisers, it will be achieved, first, by ceasing to pay the foreign debt for two years, which will mean a saving of 1.6 billion dollars in principal and interest. In addition, a new tax will be imposed on large fortunes, which will return 400 million dollars each year, although it will only affect about 10,000 people.
With this initial impulse, the Government of Arce will seek to support the three sectors that create the most jobs: manufacturing, agriculture and domestic tourism. This is how he hopes to solve the most pressing problem of the moment: the lack of sources of work, especially for young people. "We will have a neo-protectionist approach: promoting national production with the greatest possible import substitution," Yujra told this newspaper. Following this logic, it will seek to replace diesel imports, which generate a significant loss of foreign exchange for the country, with the national production of vegetable biodiesel.
Pacheco thinks that Bolivia cannot rely on projects that have not yet been tested and that, to keep the country running, Arce will have no other option than to incur significant debt with international financial organizations, as the interim government of Jeanine Añez has already begun to do. This exit, however, would be contradictory to the idea of the new president to declare a temporary moratorium on the foreign debt.
Bolivia has the largest lithium resources in the world that have yet to be commercialized. Lithium is a mineral without which cell phone batteries, computers and electric cars could not be produced that promise to reduce carbon emissions and pollution of the planet, which is why some consider it "the new oil." The economic potential of this substance for Bolivia is enormous, says Von Vacano. Except that the country has not yet defined a course to market its reserves. For ideological reasons, the MAS has never wanted the country to limit itself to exporting lithium carbonate, which is the primary resource. Morales even dreamed of producing electric batteries “made in Bolivia”.
Arce will seek public-private partnerships, says Von Vacano, maintaining the sovereignty of the country. This would imply an important source of tax revenue if investors and private companies were willing to work the reserves without privatizing them. The previous Bolivian government was on this path with a joint venture with the German company ACI Systems, which the overthrow of Morales in November 2019 cut short.
"Arce's is going to be a difficult task, this is a very serious crisis," says Von Vacano, "but I believe that little by little it will be successful."