Bolivia WT/TPR/S/57
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I. ECONOMIC ENVIRONMENT
(1) INTRODUCTION
1. Bolivia has continued, with considerable success, its programme of macroeconomic
stabilization initiated in 1985.  Since Bolivia's previous Trade Policy Review in 1993, GDP has
increased steadily, inflation has fallen, trade and foreign investment have increased significantly, and
external balances have improved.  This reflects the implementation of economic and social policiesaimed at fostering economic growth and reducing poverty through a four pronged strategy:  a broad
agenda of structural reform, including the privatization of most public enterprises;  fiscal discipline;  a
market based foreign exchange rate; and financial support from the international community, in
particular through debt relief programmes.  Despite the strategy's success, growth and poverty
reduction have lagged behind expectations.
(2) R
ECENT ECONOMIC DEVELOPMENTS
(i) Aggregate supply and demand
2. Between 1993 and 1998, GDP grew at an average annual rate of 4.6%;  notwithstanding the
negative impact of the international financial crisis on Bolivian exports, growth was sustained at close
to 5% in 1998.  During 1993-98, output growth was stronger in manufacturing and services (4.7%)and slower in the primary sector (3.7%) (Table I.1).  Growth in manufacturing was driven by the
expansion of food processing (Chapter IV(2)), while in services the most dynamic industries were
construction;  transport and communications;  and banks and finance.  The more mitigated
performance of the primary sector is partly explained by the effect of poor weather on agricultural
output in 1995 and the negative growth registered in the mining sector since 1996.
3. Led by investment and exports, aggregate demand grew at an average annual rate of 5.3%
over the period 1993-98 (Table I.2).  The resulting gap between GDP and aggregate demand broughtabout a strong rise in imports (section (3) below).  Fixed capital formation was led by the private
sector, reflecting the successful privatization of public enterprises and the large flows of direct
investment it attracted (section (4) below).
4. The labour force grew at a sustained rate of about 7.5% over 1993-96, with the informal
market absorbing almost half of the labour force throughout the period.  Real wages in the privatesector increased sharply between 1996 and 1997, probably reflecting increased demand for skilled
workers resulting from the privatization of public enterprises.
5. Real GDP per capita grew at a relatively modest rate of 2.1% over 1993-98, remaining
slightly above US$1,000 in 1998.  However, this figure might underestimate actual income per capita
as it excludes the large informal sector, such as contraband and numerous retail and other serviceactivities.WT/TPR/S/57 Trade Policy Review
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Table I.1
Basic economic and demographic indicators, 1993-98
(Per cent and Bolivianos (Bs))
1993 1994 1995 1996 1997a1998a
Demographic indicators
Population ('000) 7,065 7,237 7,414 7,588 7,767 7,950
Urban population ('000) 4,059 4,229 4,406 4,576 4,751 4,931
Labour force ('000) 1,091 1,195 1,257 1,355 .. ..
of which F ormal 57.1 57.5 55.0 56.3 .. ..
Informal 42.9 42.5 45.0 43.7 .. ..
Private sector real wage (1991=100) 110.9 119.7 121.8 122.4 132.5 ..
Total GDP at market prices (Bs billion at 1990 prices)17.2 18.0 18.9 19.7 20.6 21.6
Total GDP at producer prices (Bs billion at 1990 prices) 15.8 16.5 17.3 17.9 18.8 19.6
Sectoral contribution to GDP at producer prices
Primary sector 27.4 27.6 27.4 26.8 27.6 26.5
Agriculture, forestry and fisheries 16.5 16.8 16.3 16.3 16.6 15.4
Mining and quarrying 11.0 10.9 11.2 10.5 11.0 11.1
Crude petroleum and natural gas 4.4 4.5 4.5 4.4 5.2 5.6
Metallic and non-metallic minerals 6.6 6.3 6.7 6.1 5.7 5.5
Manufacturing sector 18.1 18.2 18.7 18.7 18.4 18.4
Food, beverages and tobacco 8.2 8.4 8.6 8.8 8.7 8.8
Other industries 9.9 9.9 10.0 10.0 9.7 9.5
Services sector 54.4 54.1 53.9 54.5 54.0 55.2
Construction 3.7 3.6 3.7 3.8 3.9 5.1
Trade 9.6 9.5 9.4 9.5 9.5 9.5
Transport and communications 10.6 10.7 10.9 11.1 11.6 12.0
Banks and finance 11.7 11.8 11.8 12.2 12.7 13.0
Government services 10.6 10.4 10.2 10.0 9.8 9.8
Other 8.2 8.0 7.9 7.9 6.5 5.7
Growth rates
Primary sector 4.8 5.4 3.7 1.9 7.5 0.0
Agriculture, forestry and fisheries 4.1 6.7 1.4 4.6 6.2 -3.5
Mining and quarrying 5.9 3.4 7.3 -2.0 9.5 5.3
Crude petroleum and natural gas 2.4 8.6 3.3 2.2 24.4 11.6
Metallic and non-metallic minerals 8.3 0.0 10.1 -4.8 -1.2 -0.5
Manufacturing sector 4.1 5.4 6.8 4.9 2.6 3.9
Food, beverages and tobacco 3.3 7.0 7.7 6.4 3.6 5.4
Other industries 4.7 4.1 6.0 3.6 1.7 2.5
Services sector 4.3 4.1 3.9 5.6 3.5 6.4
Construction 5.8 1.2 6.0 9.0 6.4 36.9
Trade 2.9 4.2 2.8 5.4 4.8 4.1
Transport and communications 4.4 6.0 5.9 6.7 8.4 7.8
Banks and finance 6.7 6.0 3.7 8.5 8.6 6.5
Government services 3.0 2.7 2.5 1.5 2.6 4.9
Other 3.3 2.3 3.4 3.6 -13.2 -8.8
Real  GDP at producer prices 4.4 4.7 4.4 4.4 4.4 4.2
Real GDP at market prices 4.3 4.7 4.7 4.1 4.6 4.8
Real GDP per capita growth 1.8 2.2 2.2 2.0 2.1 2.4
.. Not available.
aP r e l i m i n a r y .
Source: Social and Economic Policies Analysis Unit (UDAPE);  and WTO Secretariat estimates.Bolivia WT/TPR/S/57
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Table I.2
Economic performance, 1993-97
(Per cent and Bolivianos (Bs))a
1993 1994 1995 1996 1997b1998b
Aggregate supply (real annual percentage change) 3.2 3.6 5.5 5.1 6.3 5.9
GDP at market prices 4.3 4.7 4.7 4.4 4.4 4.7
Imports of goods and nonfactor services -0.7 -0.6 8.9 7.9 13.3 10.1
Aggregate demand (real annual percentage change) 3.2 3.6 5.5 5.1 6.3 5.9
General government consumption 2.6 3.1 6.6 2.6 2.5 5.0
Private sector consumption 3.3 2.9 2.9 3.3 4.7 3.4
Fixed capital formation 2.6 -8.0 13.8 11.7 30.7 26.5
Exports of goods and nonfactor services 5.3 15.1 9.1 4.1 -3.7 2.7
Share of GDP at constant market pricesc
General government consumption 11.6 11.4 11.6 11.4 11.2 11.2
Private sector consumption 76.2 74.9 73.7 72.9 73.1 72.1
Fixed capital formation 15.4 13.5 14.7 15.8 19.7 23.8
Exports of goods and nonfactor services 23.3 25.6 26.7 26.6 24.6 24.1
Imports of goods and nonfactor services 26.4 25.0 26.0 26.9 29.2 30.7
GDP deflator (annual percentage change) 9.4 7.9 11.4 11.5 6.7 7.7
Monetary sector (percent change, end of year)
Base moneyd32.5 17.3 12.5 27.8 19.5 -24.7
Broad money (M3')e36.4 21.6 9.5 43.1 19.6 14.0
Dollarization (share of  foreign currency in M3')e83.9 81.9 80.4 83.8 84.0 85.0
Net internal credit (Bs million) -606.9 -919.8 -1,470.8 -3,042.5 -3,556.9 -3,579.1
Exchange rate and prices
Annual cumulative inflation rate 9.3 8.5 12.6 8.0 6.7 4.4
Consumer prices (period average) 8.5 7.9 10.2 12.4 4.7 7.7
Nominal exchange rate (Bs per US$, average) 4.3 4.6 4.8 5.1 5.3 5.5
Real effective exchange rate (1990=100; end of period)f111.6 127.7 124.5 123.1 118.0 119.7
.. Not available.
a Based on Bolivianos at 1990 price.
bP r e l i m i n a r y .
c Changes in inventories not included.
d In May 1998, changes were made to the accounting method appl ied to reserves requirements for deposits in foreign currency.
e M3' comprises M3 in local currency and deposits in foreign currencies.
f An increase of the index corresponds to a depreciation of the REER.
Source: Social and Economic Policies Analysis Unit (UDAPE);  Central Bank of Bolivia;  and WTO Secretariat estimates.
(ii) Public finances
6. The fiscal deficit narrowed from 6% of GDP in 1993 to historically low levels of less than 2%
in 1995 and 1996 (Table I.3).  In 1998, it widened to 4% of GDP mainly as a consequence of the
pension system reform increasing the gap between current transfer revenues and expenditures.WT/TPR/S/57 Trade Policy Review
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Table I.3
Consolidated operations of the combined public sector, 1993-98
(In per cent of nominal GDP)
1993 1994 1995 1996a1997a1998a
Total revenue 31.2 33.5 32.5 31.3 30.3 30.9
Current revenue 29.6 31.0 30.8 28.8 28.9 29.6
Tax revenue 10.3 10.4 11.2 11.9 12.8 14.0
Hydrocarbon tax revenue 9.8 9.2 8.8 9.3 8.5 9.6
Sales of public enterprises 6.0 6.3 5.3 2.5 1.7 1.1
Current transfers 1.1 1.2 1.2 1.3 1.7 0.8
Other 2.3 3.9 4.2 3.9 4.1 4.1
Capital revenue 1.5 2.5 1.7 2.5 1.4 1.3
Total expenditure 37.2 36.5 34.3 33.2 33.7 34.9
Current expenditure 28.0 27.4 26.1 24.9 26.5 28.6
Wages and salaries 12.0 12.1 11.1 10.9 10.5 10.2
Goods and services 7.4 6.8 6.8 5.8 6.9 8.6
Interest on external debt 2.3 2.2 2.4 1.8 1.4 1.2
Interest on internal debt 0.5 0.2 0.3 0.5 0.1 0.2
Current transfers 2.3 3.2 3.1 3.5 5.1 6.4
Other 3.5 2.9 2.5 2.3 2.4 2.1
Capital expenditure 9.2 9.0 8.2 8.4 7.2 6.3
Current surplus 1.6 3.6 4.7 4.0 2.4 1.0
Overall deficit -6.1 -3.0 -1.8 -2.0 -3.4 -4.0
Overall financing 6.1 3.0 1.8 2.0 3.4 4.0
External financing 5.0 3.7 3.6 2.6 2.7 2.8
Internal financing 1.0 -0.7 -1.8 -0.6 0.7 1.2
Memoradum item:
Nominal GDP (Bs billion) 24.5 27.6 32.2 37.5 41.8 47.2
aP r e l i m i n a r y .
Source: Data provided by the Bolivian authorities.
7. Growth in government revenue has been due in large part to increased tax collection, largely
reflecting government efforts to improve tax administration.  After a rise in hydrocarbon excise taxes
in December 1997, better tax administration, rather than higher tax rates, is expected to result in
further increases in revenue.  This should compensate  in part for declining revenues from privatization
proceeds, a trend that reflects the shrinking number of potential public enterprises for sale.  Revenue
on the budget's capital account reflects mainly continued donations from the international community.
8. Fiscal discipline has resulted in a significant reduction of total government expenditure as a
share of GDP:  with the previously mentioned exception of current transfers, all expenditure items
have declined.  In the wake of the privatization process, public investment has decreased;  its structure
has also undergone important changes, with the share of investment directed to social and
infrastructure projects experiencing a notable expansion.  The structure of public sector expenditure
may suffer further changes as a result of the ongoing decentralization process that has given fiscalautonomy to local governments.Bolivia WT/TPR/S/57
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9. The deficit has been largely covered by external sources;  in 1998, 70% of the fiscal deficit
was financed externally, the two major creditors being the Inter-American Development Bank and the
World Bank.
(iii) Monetary and exchange rate policy
10. The adoption in October 1995 of Law No. 1670, the Law of the Central Bank of Bolivia
(BCB), brought major changes to Bolivia's monetary and exchange rate policy framework.  This lawestablished the independence of the BCB, while directing it to take into account the economic policy
of the Government when formulating its policies (Article 4).  Law No. 1670 also made the BCB
responsible for policy formulation with respect to monetary, exchange and financial matters
1;  on
monetary matters, the law defined the BCB's main objective as securing the stability of the internal
purchasing power of the domestic currency.
(a) Exchange rate policy
11. Since 1985, the BCB intervenes in the foreign exchange market through a daily foreign
exchange auction mechanism, implementing a crawling-peg scheme. In 1994, the focus of the
exchange rate policy became one of maintaining a real Multilateral Exchange Rate (TCM) to achieve
stability and maintain international currency competitivity vis-à-vis Bolivia's six largest tradingpartners (Brazil, Chile, Germany, Japan, the United Kingdom, and the United States).
12. In May 1997, the Argentinian peso and the Peruvian sol were added to the currency basket,
and bilateral trade with each of the eight major partners were adopted as weights in the daily
calculation of the TCM.  Upper and lower limits, reflecting 2.5% variation around the referential
TCM are used by the Central Bank as internal reference;  however, the Bank neither announces the
band to the public, nor commits itself to defend its limits.
13. The real effective exchange rate (REER) calculated by the BCB, depreciated by 27
percentage points from 1990 to 1994;  it appreciated by 10 points between 1995 and 1997 (Chart I.1).
Over the 1990-97 period, the movement in this indicator suggests a gain in external competitiveness
of some 18%.
14. Bolivia has no exchange or currency controls and foreign currency transfers are unrestricted.
The obligation to sell all foreign currency pro ceeds from exports to the BCB was suppressed by
Supreme Decree No. 24485 of 31 July 1997.
                                                     
1 See Chapter IV(5)(ii) for details on BCB's functions relating to the financial sector.WT/TPR/S/57 Trade Policy Review
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0123456
1990 1991 1992 1993 1994 1995 1996 1997
-10 -8 -6 -4 -2 0246810
1990 1991 1992 1993 1994 1995 1996 1997
8090100110120130
Jan-90 Jan-91
 Jan-92
 Jan-93
 Jan-94
 Jan-95
 Jan-96
 Jan-97
          
a              Upward movements indicate a depreciation.Source :  Central Bank of Bolivia; National Institute of Statistics (INE) and Social and Economic Policies Analysis
                Unit  (UDAPE). Chart I.1
Main indicators of macroeconomic performance 1990-97
Balance of paymentsReal GDP Growth
Per cent
Per cent of GDP
Real effective exchange rateaMerchandise trade balance Current account Forei gn direct investment
1990 =100; end of periodBolivia WT/TPR/S/57
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(b) Monetary policy
15. Monetary and fiscal discipline has brought down the annual cumulative inflation rate, from
some 9% in 1993 to under 5% in 1998, aided by a reduced pass-through between nominal
depreciation and domestic prices.  In order to preserve the internal purchasing power of domestic
currency, the BCB focuses on quantity targets in the short and medium term (rather than on interest
rates), in particular net internal credit to the non-financial public sector and the private financialsector.  Since 1993, net internal credit (loans by the BCB less deposits maintained in the Bank) has
declined.  Broad money (M3') expanded at an average annual rate of 21% between 1993 and 1998.
16. The dollarization of the economy remains high.  Measured as the percentage of foreign
currency in broad money (M3'), in 1998 the degree of dollarization was 85%.  Since 1993, the
authorities have tried to reduce the degree of dollarization through, among other things, theintroduction of the Multilateral Exchange Rate (TCM) and differentiated legal reserve requirements
for deposits in bolivianos and foreign currencies.
17. Open market operations constitute the central instrument of monetary policy.  To control
monetary aggregates, the BCB issues Certificates of Deposits (CDs) in both domestic currency and
U.S. dollars.  The placement of CDs in U.S. dollars responds to the  dollarization of the economy andallows the sterilization of short-term capital infl ows, reducing pressures for appreciation in the real
effective exchange rate.  Since December 1993, the Treasury has introduced its own titles in the
market as an alternative to short-term external borrowing.
2  These treasury papers have become the
main instrument for open-market operations conducted by the Central Bank.
18. In order to increase the efficiency of liquidity management and to reduce costs of reserve
requirements, the entire reserve requirement system was overhauled in May 1998.  Under the new
regulations, the two components of the reserve requirements are a non-remunerated cash reserverequirement of 2% and a liquid asset requirement of 10% on eligible deposits to be invested in quality
assets, which could serve as collateral for short-term liquidity loans from the BCB.
19. As part of its responsibilities as regulator of the financial system, the BCB is authorized to
provide liquidity credits to authorized financial institutions within the limits established by the
monetary programme.  Under special circumstance s, the BCB can supply credit to the Treasury,
provided the Bank receives in return negotiable public debt titles of the Treasury with a term not
exceeding one year.
(iv) Balance of payments
20. Bolivia's traditional merchandise trade deficit increased between 1994 and 1998 as the gap
between the growth rates of imports and exports widened (Table I.4).  Increased imports mainlyreflected purchases of intermediate and capital goods by privatized enterprises and the construction of
a gas pipeline to Brazil.  Bolivia's terms of tr ade remained roughly unchanged over 1993-97, albeit
well below their 1990 level.
21. The trade balance deterioration has led to a widened current account deficit (about 8% of
GDP in 1998).  This deficit has been compensated by net capital inflows, in particular foreign directinvestment (FDI), which increased at an averag e annual rate of 48% during 1993-98 (section (4)
below).  Bolivia's overall balance of payments became positive in 1996 and 1997, allowing a build-up
                                                     
2 Treasury papers are issued in three forms:  boliv ianos, U.S. dollars, and bolivianos indexed to the
U.S. dollar.WT/TPR/S/57 Trade Policy Review
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of international reserves, which stood at the equivalent of about six months of imports at the end
of 1997.
Table I.4
Balance of payments, 1993-98
(US$ million, unless otherwise specified)
1993 1994 1995 1996 1997a1998a
Overall balance-of-payments position -102.1 -49.7 -44.2 341.8 115.3 -28.8
Current account balance -408.3 -71.2 -299.7 -349.2 -553.1 -675.6
Merchandise trade -423.9 -161.9 -343.9 -404.3 -684.4 -879.0
Exports (f.o.b.) 709.7 985.1 1,041.5 1,132.0 1,166.5 1,104.0
Imports (c.i.f.) 1,133.6 1,147.0 1,385.4 1,536.3 1,850.9 1,983.0
Services (net) 11.4 20.1 25.6 -14.3 35.7 33.9
Exports 128.5 138.3 135.1 186.1 246.7 251.3
Imports 117.1 118.2 109.5 200.4 211.0 217.4
Factor services -223.4 -196.7 -228.1 -180.8 -196.2 -160.2
   of which:  interest due 203 176 203 143 155.0 142.2
Official transfers (net) 227.6 267.3 246.7 250.2 291.7 329.7
Capital account balance 405.1 393.7 534.3 793.0 914.7 669.8
Capital transfer (net) - - - 40.4 25.3 9.9
Public sector medium and long-term 199.7 225.6 290.5 248.0 205.1 86.7
   Disbursement 319.2 364.5 430.4 396.9 370.8 314.9
   Amortization due -119.5 -138.9 -139.9 -148.9 -165.7 -228.2
Direct investment 121.6 128.0 372.3 471.9 728.0 869.8
Other capital account (net) 83.8 40.1 -128.5 32.7 -43.7 -296.6
Errors and omissions -98.9 -372.2 -278.8 -102.0 -246.3 -22.7
Net international reserves 370.9 502.4 650.3 950.8 1,066.0 1,063.4
Growth rate 58.9 35.5 29.4 46.2 12.1 -0.2
In months of imports of goods and services 3.6 4.8 5.2 6.6 6.2 5.8
Memorandum items:
Export price index (1990=100) 74.5 78.6 81.6 81.8 82.0 ..
Import price index (1990=100) 110.7 114.1 118.2 121.1 120.1 ..
Export volume index (1990=100) 112.7 148.1 148.9 158.6 163.3 ..
Import volume index (1990=100) 153.6 152.4 178.7 204.3 232.3 ..
Terms of trade index 67.3 68.9 69.0 67.5 68.3 ..
Terms of trade (% change) -2.4 10.7 -0.7 -0.8 8.7 ..
- No value reported.
.. Not available.
aP r e l i m i n a r y .
Source: Social and Economic Policies Analysis (UDAPE);  Central Bank of Bolivia;  and WTO Secretariat estimates.
22. Bolivia's external debt stock increased from US$4,234 million in 1997 to US$4,396 in 1998.
At the end of 1998, public debt contracted with the Inter-American Development Bank represented
31% of Bolivia's total public debt and 50% of multilateral debt, the two major bilateral creditors were
Japan and Germany with, respectively, 12% and 9% of total debt.  In 1997, Bolivia's debt service
represented 26% of exports of goods and services.  In September 1997, Bolivia was integrated into theIMF and World Bank Heavily Indebted Poor Countries (HIPC) Initiative.  In September 1998, thisBolivia WT/TPR/S/57
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resulted in debt relief from all creditors of US$448 million (at net present value) programmed over a
ten-year period.  In 1998, the HIPC initiative resulted in an effective debt relief of US$25.9 million.
(3) COMPOSITION AND DIRECTION OF TRADE
(i) Merchandise trade
23. Although trade statistics must be considered w ith caution as they are subject to considerable
uncertainty (Box I.1), it is clear that Bolivia's generally open trade regime has contributed to asignificant increase in trade.  Thus, between 1993 and 1997 the share of reported trade flows in GDP
rose from about 36% to 43%.  Furthermore, since 1993 Bolivian trade has diversified considerably
both in terms of products and of markets;  the share of minerals in total exports has fallen, and that of
neighbouring countries has increased.  In 1998, export performance was adversely affected by the
international crisis that began in 1997, with earnings of all major exports categories falling.  Theconcurrent substantial import growth, driven by capital goods, resulted in a marked widening of the
trade deficit.
24. Bolivia exports mainly primary and semi-processed products:  agricultural and mining
products accounted for slightly more than 80% of total reported exports over 1993-97.  Mining
products continue to be Bolivia's major single category, though their importance has declinedsince 1985 (Chart I.2 and Table A1.1).  In 1993, minerals accounted for 56% of total exports,
declining to 42% in 1997.  The share of legal agricultural products in total exports followed an
opposite path, rising from 25% in 1993 to 42% in 1997.  This increase was mainly due to the
expansion of production and export of soya and its derivatives (Chapter IV(2)(iii)).
25. The composition of Bolivian imports has remained relatively stable, with manufactured goods
representing the bulk.  In 1997, 81% of total reported merchandise imports where manufactured
goods, of which machinery and transport equipment were the most important items (Chart I.2 andTable A1.2).
26. Bolivia's single major export destination remained the United States and the European Union,
each accounting for some 22% of total recorded exports in 1997 (Chart I.3 and Table A1.3).
However, reflecting Bolivia's greater regional integration through its participation in regional trade
agreements (Chapter II(3)(ii)), the share of Bolivia's exports to preferential Latin American partnersincreased from 41% in 1993 to 47% in 1997.  In that year, the principal national destinations were
Argentina, Peru, and Colombia;  exports to Chile rose from 2% of the total in 1993 to just over 5%
in 1997.
27. Bolivia's major suppliers remained the European Union and the United States, albeit that the
first has lost some significance since 1993 (Chart  I.3 and Table A1.4).  Between 1993 and 1997, the
share of reported imports from regional preferential partners rose from 40% to 44%.WT/TPR/S/57 Trade Policy Review
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Box I.1:  Trade data issues
Both export and import data are likely to be underestimate d in official statistics because of the large informal
sector, the high level of contraband and illegal coca trade.  The importance of contraband is suggested by thewide gap between bilateral trade flow statistics declared by Bolivia and its seven principal partners.  Forexample, the following trade flows were reported in 1997 (US$ million):
Reported by Bolivia Re ported by partners
Partners Exports Imports Exports Imports
Argentina 183.0 259.4 135.5 457.3
Brazil 37.4 227.6 29.3 719.1
Chile 59.3 122.5 62.5 228.4
EU (15) 255.8 280.6 211.1 247.6
Japan 4.1 236.2 12.6 158.3
Peru 158.5 94.6 151.3 107.8
United States 264.1 402.8 229.8 283.5
Discrepancies appear in particular for bilateral trad e flows between Bolivia and its neighbouring countries:
total imports from Argentina, Brazil, Chile and Peru reported by the Bolivian authorities amounted toUS$704 million, while these countries reported exports to Bolivia of US$1,512 million.  On aggregate,Bolivia's trade deficit with its seven principal pa rtners amounted to US$661 million according to Bolivian
statistics, while commercial partners' statistics reflected a sharper trade deficit of US$1,370 million.
These statistical gaps may also arise from problems identifying destination or origin, as suggested by the fact
that Bolivia's reported imports from the United States and the European Union are higher than the declaredexports of these countries.  Other explanations might re late to usual caveats applying to trade statistics, such
as differences in customs valuation procedures, in repor ting time lags or in the inclusion of insurance and
freight costs, as well as illegal merchandise imports fr om neighbouring countries.  Comparison of bilateral
flows by product provides supports to the latter explanation;  data discrepancy on bilateral trade with
Argentina, Brazil and Chile concern a large range of products, including food, textiles, and manufacturedmerchandise.  The main source of discrepancy in Bolivian imports from Japan concerns vehicles, whichmight reflect efforts made to legalize previously smuggled Japanese cars.
The actual value of exports is also underestimat ed because coca-related pr oducts are not recorded.
According to estimates by the author ities, coca was still the first export product in 1996, although the ratio of
exports generated by the coca sector to total legal exports fell sharply from 36% in 1990 to 15% in 1996 (thelast year for which data are available).
Source :  WTO Secretariat;  UNSD, Comtrade databa se (SITC Rev.1);  and Bolivian authorities.Bolivia WT/TPR/S/57
Page 11
Chart I.2
Merchandise trade by product, 1993 and 1997
1993 1997
(a)    Ex ports (f.o.b. )
Total: US$ 737.3 million
(b) Imports (c.i.f.)
Total: US$ 1,159.3 million Total: US$ 1,865.5 million
Source:   UNSD, Comtrade database (SITC Rev.1).Per cent
Other mining
7.1%
Zinc ore 
concentrates
16.2%Other 
manufactures
8.9%
Real jewellery, gold 
and silver
9.9%
Food and agricultural 
raw material
11.1% 
Office machine
 & telecom equip.
5.3% Other mach. 
& transport 
equip.
3.1%Iron and steel
5.1%Other manufactures and 
semi-manufactures
26.4%
Other electric and non-
electric machinery
17.5%Other mining
3.7%Distillated and 
residual fuel oils
3.4%Total: US$ 1,161.6 millionCrude petroleum 
and natural gas
13.1%Agricultural
 raw materials
8.8%Food 
16.5%
Silver and 
platinum ores
6.5%Tin and alloys
13.0%
Passenger motor 
vehicles
6.9%Aircraft
6.4%Chemicals
11.1%Petroleum and
MiningManufacturesManufactures
AgricultureAgriculture
Manufactures ManufacturesAgr.Agr.Petroleum
and
Mining
Zinc ore 
concentrates
17.2%Other agricultural
 raw materials
9.8%Food 
32.1%
Silver and 
platinum ores
4.1%Other mining
4.6%Other 
manufactures
9.7%Real jewellery,
 gold and silver
6.4%
Crude petroleum 
and natural gas
8.4%
Tin and alloys
7.7%
Office machine
 & telecom equipt.
11.1% Iron 
and steel
4.2%Other mining
2.4%Distillated and 
residual fuel oils
6.8%
Chemicals
12.5%Foodand and 
agricultural raw 
material
10.0% Other manufactures and 
semi-manufactures
21.3%
Other mach. 
& transport 
equip.
4.8%
Other electric and non-
electric machinery
15.8%Passenger motor 
vehicles
8.0%Aircraft
3.1%Mining MiningWT/TPR/S/57 Trade Policy Review
Page 12
Chart I.3
Merchandise trade by partner, 1993 and 1997
1993 1997
(a)    Ex ports (f.o.b. )
Total:   US$ 737.3 million Total:   US$ 1,161.6 million
Total:   US$ 1,159.3 million Total:   US$ 1,865.5 million
               
Source:    UNSD, Comtrade database (SITC Rev.1).Per cent
Colombia
5.0%
Peru
10.7%Other
2.2%
Argentina
17.2%
United States
29.1%Belgium-
Luxembourg
6.6%European Union
27.2%
Other
5.7%Central and Latin 
America
39.8%Japan
11.1%(b)    Im ports (c.i.f.)
United States
21.4%European
Union
22.0%United
Kingdom
15.5%
  Argentina
9.9%
 Brazil
12.9%Other Latin 
America
8.6%
Colombia
7.5
Peru
13.6%Other
8.0%
Argentina
15.8%United States
22.7%European Union
22.1%Other Latin 
America
10.3%
Belgium-
Luxembourg
6.1%   United    
   Kingdom
   10.9%
Chile
7.6%Other
6.0%Central and Latin 
America
44.7%Japan
12.7%
United States
21.6%European
Union
15.0%Argentina
13.9%
 Brazil
12.2%
Chile
6.6%Bolivia WT/TPR/S/57
Page 13
(ii) Trade in non-factor services
28. Bolivia's trade in non-factor services has traditionally been in deficit.  Between 1993 and
1997, imports of services grew at an average annual  rate of 5%, while exports grew only at 1.3%,
resulting in a widening trade deficit (Table I.5).  In 1997, transport services, of which freight services
was the major item, represented the bulk of non-factor services imports, with over 60% of total.In 1997,  the share of services other than transport or travel accounted for one quarter of total imports,
insurance services being the major item.  Bolivia exports mainly transport and travel services, altough
exports of insurance and communication services were not negligible in 1997.
Table I.5
Trade in non-factor services, 1993-98
(US$ million)
1993 1996 1997 1998a
Category Credit Debit Credit Debit Credit Debit Credit Debit
Total 184.4 330.7 185.2 357.3 195.5 407.2 111.6 198.7
Transport 59.0 180.5 73.6 216.6 76.7 246.4 39.8 124.1
Maritime .. .. - 169.9 - 191.9 - 96.5
Air .. .. 21.6 - 22.6 - 11.7 -
Other .. .. 52.0 46.7 54.1 54.5 28.1 27.6
Travel 69.5 69.45 60.9 50.5 65.8 57.1 34.1 21.1
Other 55.9 76.0 50.7 90.1 53.0 103.7 37.7 53.5
Communication .. .. 10.9 4.5 11.4 5.0 7.8 2.9
Insurance .. .. 20.2 31.4 21.2 38.7 14.5 20.0
Other financial .. .. 3.1 - 3.2 - 2.9 -
Computer and information .. .. - 3.9 - 4.5 - 2.3
Technical and professional .. .. - 8.5 - 9.5 - 4.8
Royalties and licences .. .. - 4.0 - 5.0 - 2.6
Government .. .. 14.6 26.5 15.2 27.9 11.0 14.5
-N i l .
.. Not available.a First semester of 1998.
Source : Banco Central de Bolivia (1998), Boletín del sector externo , No. 19.
(4) TRENDS IN FOREIGN INVESTMENT
29. Foreign direct investment (FDI) in Bolivia has increased sharply since the beginning of the
decade.  From US$128 million in 1993, FDI flows rose to over US$872 million in 1992.  Moreover,
since 1995 FDI has represented the principal item in Bolivia's capital account, surpassing, for the first
time in recent history, long term public debt as an external source of finance:  while FDI represented
30% of total capital inflows in 1993, this proportion rose up to 66% in 1997.
30. Macroeconomic stability coupled with structural reform, particularly the privatization of
public enterprises (Chapter II(4)), are determinant fa ctors explaining recent FDI trends.  The limited
development of domestic capital markets might also have been an incentive for increased direct
investment since, contrary to other countries, there have been little portfolio investment options
available in Bolivia.  The main foreign investors in Bolivia over 1993-98 were the United States and
the European Union, although Bolivia's Latin American partners have also played an important role
(Chart I.4).WT/TPR/S/57 Trade Policy Review
Page 14
31. Foreign investment has traditionally been directed to the hydrocarbons and mining sectors,
which received the bulk of total cumulative FD I inflows over 1990-98.  However, following the
privatization and capitalization processes (Chapter II(2)(i)), the services sector has attracted an
increasing share of investment flows particularly si nce 1994 (Table I.6).  FDI inflows into the services
sector rose from a share of less than 1%  of total FDI flows in 1993 to 35% in 1998.
US$ million and per cent
      
Data provided by the Bolivian authorities.Chart I.4
Bolivian FDI inflows by origin and sector, 1993-98
Total: US$2,570 million
Source :(a) Cumulative FDI inflows by origin, 1993-98 (b) Cumulative FDI inflows by sector, 1993-98
United States
39.6%
Argentina
14.1%Canada
4.4%
other European 
Union
7.9%Italy
10.7%Chile
8.3%Brazil
4.8%Other
10.2%
Total: US$2,570 millionHydrocarbons
47.3%
Mining
9.8%Industry &
agro-industry
8.2%Services
34.7%
Table I.6
Foreign direct investment in Bolivia by main economic sector, 1990-98a
(US$ million)
Sector 1993 1994 1995 1996 1997 1998Cumulative
1993-98
Hydrocarbons 65.3 62.8 137.7 116.3 322.3 510.2 1,215
-  c a p i t a l i z e d  e n t e r p r i s e s ---- 2 8 0 . 6 . . . .
-  other firms 65.3 62.8 137.7 116.3 41.7 .. ..
Mining 42.0 28.1 47.4 53.0 44.7 37.1 252
-  c a p i t a l i z e d  e n t e r p r i s e s ----- . . . .
-  other firms 42.0 28.1 47.4 53.0 44.7 .. ..
Industry and agro-industry 20.9 31.5 52.9 71.5 19.5 15.8 212
-  c a p i t a l i z e d  e n t e r p r i s e s ----- . . . .
-  other firms 20.9 31.5 52.9 71.5 19.5 .. ..
Services 0.6 51.5 97.4 183.7 249.2 308.9 891
- capitalized enterprises - - 5.0 177.9 193.1 .. ..
-  other firms 0.6 51.5 92.3 5.8 56.1 .. ..
Total 128.8 173.9 335.4 424.5 635.7 872.0 2,570
-N i l .
.. Not available.
Note: The slight divergence from the amounts reported in Chart I.4 are due to different sources.Bolivia WT/TPR/S/57
Page 15
Source : Data provided by the Bolivian authorities.
(5) OUTLOOK
32. Bolivia's stabilization and structural reform programmes have had considerable success,
which should be consolidated in coming years by the authorities' continued commitment to fiscal and
monetary discipline.  GDP is expected to grow at over 4% in 1999, and faster progress in poverty
alleviation is likely to follow the current policy fo cus on social programmes, including reform of the
education and health systems.  The HIPC initiative will allow the Government to reallocate resources
from debt service to social expenditures (reallocation is estimated at around 0.7% of GDP over1999-2002).  The fiscal deficit is likely to remain ma nageable in view of the authorities' commitment
to improved tax administration, including through the implementation of an ambitious customs reform
programme.  Ongoing changes to the pension system are likely to support increased savings and
future growth.
33. External balances are expected to benefit from the earnings generated by the recent start of
natural gas shipments to Brazil and a sharp increase of silver production, although Brazil's currency
devaluation in 1999 and subsequent economic slow-down will have a dampening effect on otherBolivian exports.  Greater export diversification and supply response in manufacturing to economic
reform will remain a major challenge;  addressing  it will involve eliminating distortions arising from
the large informal sector.  Import and foreign investment flows may sl ow down following the
completion of the gas pipeline to Brazil and other major capital projects.  Although the privatization
programme and new mining ventures should continue to attract considerable interest from foreigninvestors.