Bolivia’s Gritty High Altitude Ascent
After almost a century’s absence Bolivia returned to the sovereign bond market with a clamored-for $500 million 10 year issue at a below 5 percent yield, despite the Morales government’s history of arbitrary nationalizations in line with enshrined statist economic policies. Before the operation Fitch had matched S&P’s credit rating with an upgrade to BB- on “strong external buffers” following official debt relief with the ratio at only 15 percent of GDP. On mining and hydrocarbon revenue economic growth will repeat at 5 percent this year on inflation as well of that sum. The IMF has noted rapid real estate and consumption increases which will further be aided by a recent 20 percent minimum wage hike. Fiscal and current account surpluses could disappear with commodity correction, and business and competitive performance is at the bottom of world rankings. Fuel subsidies are a drag and expropriation compensation will also weigh on future spending. The central bank has emerged as a major company and project funding source with approval to lend $5 billion, or 40 percent of net international reserves, at 1 percent for 20 years. The local currency exposure could result in quasi-fiscal losses and complicate efforts to maintain the crawling peg exchange rate regime. With high bank reserve requirements dollarization has dropped to one-third the system, but private and smaller borrowers still face limited access. At the same time the bond road show was launched in the US and Europe, oil and gas monopoly YPFB opened 30 exploration tracts to worldwide bidding as a new joint venture code is prepared. As with his Andean counterparts in Ecuador and Venezuela President Morales is seeking additional term momentum despite regular tiffs with opposition parties and indigenous groups. Venezuela’s external debt coupon in contrast is almost 10 percent while Ecuador’s willingness to pay default removed it from mainstream securities indices and commercial facilities have since been available only from the Chinese. Next February’s election will likely debate change in the dollar arrangement under exporter and foreign partner pressure, despite continued reliance on US remittances.
Neighboring Uruguay, which has also enjoyed sudden investor popularity, has benefited from a flexible currency “shock absorber” with a capital inflow surge, according to the IMF’s November Article IV report. Despite appreciation against the Argentine and Brazilian units the central bank there raised interest rates as food and wage inflation continues to spiral. Temporary price controls have been imposed on consumer items in an effort to return to the target range amid predicted 3-4 percent GDP growth. Although an investment-grade rating was awarded earlier this year doubts linger over achieving a mid-decade public debt-output ratio of 45 percent. The state electricity company and mainstay agricultural producers regularly suffer from drought and that condition could resume for future fixed-income allocation, the review implies.
