Bolivia’s Gas-Fired Freeriding
Bolivian bond yields dropped to 4.5 percent as President Morales steamrollered to third term re-election with majority legislative control as he trounced candidates including cement company magnate Doria who criticized tripled public spending to $3 billion over his tenure. Per-capita income near $3000 remains the lowest in South America, but a 150 percent jump in hydrocarbon revenue since nationalization has funded social and infrastructure programs like the mountain cable car line between La Paz and El Alto. GDP growth of 5 percent leads the region, but the investment ratio has stayed under 20 percent. Gas output will stagnate over the coming years, and a new private investment law is under consideration to restore confidence after previous expropriations where compensation was delayed. Fitch Ratings recently upgraded the sovereign outlook to positive on the expectation that strong energy import demand from Argentina and Brazil would continue to pay for wage hikes and cash transfers pledged during the campaign. The country’s first Indian leader espouses a socialist philosophy against business elites on the economy and the US and the West in diplomacy but such tendencies have been moderated by the Finance Minister who emphasizes fiscal balance and FDI welcome. An exploration contract was signed with Russia’s Gazprom and before the poll the government announced a $500 million investment plan by the state gas monopoly.
President “Evo” has been closely aligned with his counterparts in Venezuela, but the creditworthiness disparity has gapped between the two with the latter’s downgrade to CCC near default as CDS spreads hit 1500 basis points. An October $1.5 billion repayment was honored at the last minute amid reports that liability management operations are under preparation, as the EMBI component showed a loss with the benchmark bond yield above 15 percent. President Maduro promised greater transparency in off-balance sheet funds and economic statistics, but Fonden holdings and latest quarter data remain unknown. With large gold allocation liquid reserves are estimated at less than $5 billion and only inflation numbers have been released at 65 percent in August. The black market bolivar rate is over 100/dollar with multiple official levels ranging from 6.3 to 50 under narrow availability and eligibility. The IMF predicts a 3 percent GDP contraction as long-established multinational firms continue to exit with foreign exchange scarcity and power and security breakdowns. Auto production has plummeted 80 percent on an annual basis and retail sales were off 50 percent in the first half according to industry sources. Import arrears are around $15 billion and could not be covered by the rumored sale of the PDVSA’s US Citgo station network valued preliminarily at $10 billion as Exxon Mobil and other claimants await likely arbitration awards from Chavez era confiscations. President Maduro’s popularity reached a new opinion low as he vowed to keep honoring external debt despite the drumbeat from Harvard professors that the load is unsustainable both on moral and financial terms as the Rogoff-Reinhart team famous for the This Time is Different tome cited an unchanged default pattern.
