A new report has found social and economic improvements in Bolivia since debt cancellation in 2005, but other factors are also responsible.
Fundación Jubileo (Jubilee Bolivia) have released research on the impact of debt relief through the Heavily Indebted Poor Countries initiative in Bolivia.
Bolivia first had some debt cancelled under the Heavily Indebted Poor Ccountries initiative in 1998, and after this had little impact, again in 2001. However, this debt relief made little reduction in the total level of debt, simply bringing it down to levels considered payable by the IMF and World Bank. The report finds the total amount of debt increased between 1998 and 2005, and debt payments peaked in 2005. Bolivia’s debt and debt payments only fell following the agreement in 2005 to cancel much of the debt owed to the IMF, World Bank and (from 2007) the Inter-American Development Bank.
The report estimates that debt relief has so far saved Bolivia $2.2 billion in cancelled payments since 1998, and will ultimately save $5.4 billion by the time the last cancelled debt payment was due to be paid in 2045. The largest single year saving was in 2010; $256 million.
The report finds that there has been a marked decrease in poverty and inequality since 2007, along with improved social and economic outcomes. The percentage of the population living in extreme poverty stagnated around 40 per cent from 1996 to 2007, but fell to 26 per cent by 2009. The Gini index measure of inequality was constantly around 60 from 1996 to 2006, but fell to 50 by 2009. There has also been improvement in health and social outcomes. For example, the percentage of the population covered by an adequate maternity service has increased from 41 per cent in 2005 to 53 per cent in 2009. The economy has also performed strongly. GDP per person has doubled from $1000 in 2005 to $2000 in 2010.
The debt savings from 2005 have been correlated with increased prices for the country’s hydrocarbon and mining resources. These have both increased the amount of money available to the government and local municipalities, so it is difficult to determine how much the improvements in social and economic outcomes has been due to debt relief. The report suspects that the hydrocarbon and mining resources have had a larger impact than debt cancellation.
The Bolivian government’s external debt has increased by $700 million since 2007, but because of economic growth has continued falling as a percentage of GDP. In 2010 it was 15 per cent of GDP, compared to 17 per cent in 2007 and 52 per cent in 2005. The government debt owed domestically, to citizens or companies in the country, is now higher than external, making up 62 per cent of the government’s total debt. Government domestic debt is currently 24 per cent of GDP, compared to 23 per cent in 2005.
Unlike other HIPC countries, Bolivia has had a trade surplus since debt cancellation, averaging 1.7 per cent of GDP since 2006 (compared to a deficit of 3.7 per cent from 1997 to 2005). Every other country which has completed HIPC has continued to record trade deficits. This means Bolivia should be less vulnerable to entering a debt crisis again in the future – a trade surplus means it is effectively lending money to the rest of the world, rather than borrowing – though the continued dependence on hydrocarbons and mining does leave the country vulnerable to changes in global commodity prices.