The 2013 guide to. bolivia. January Published in conjunction with:

The 2013 guide to bolivia January 2013 Published in conjunction with:

Contents Building a new model that works 2 Successful implementation of a plural economy Interview with Luis Arce, Bolivian minister of economy and public finances 4 Bond issue sets the seal on economic transformation 7 Reduced risk, increased credibility 9 FDI does Bolivia the power of good 10 Magnet for visitors 11 This guide is for the use of professionals only. It states the position of the market as at the time of going to press and is not a substitute for detailed local knowledge. Euromoney Trading Ltd Nestor House Playhouse Yard London EC4V 5EX Telephone: +44 20 7779 8888 Facsimile: +44 20 7779 8739 / 8345 Chairman: Richard Ensor Directors: Sir Patrick Sergeant, The Viscount Rothermere, Christopher Fordham (managing director), Neil Osborn, Dan Cohen, John Botts, Colin Jones, Diane Alfano, Jaime Gonzalez, Jane Wilkinson, Martin Morgan, David Pritchard, Bashar Al-Rehany Advertising production manager: Amy Poole Journalists: Jason Mitchell and Andrew Mortimer Printed in the United Kingdom by: Wyndeham Group Euromoney Trading Ltd London 2013 Euromoney is registered as a trademark in the United States and the United Kingdom.

Building a new model that works Bolivia s economy has been transformed in the past few years. The figures speak for themselves. But much remains to be done. By Jason Mitchell Bolivia enjoys some of the best economic fundamentals of any country in Latin America and saw high average economic growth of 4.7% between 2006 and 2011. High commodity prices in recent years have helped push up the Central Bank s foreign reserves to around $13 billion, against $1.7 billion when Morales came to power. The land-locked country known officially as the Plurinational State of Bolivia has a total population of 10.4 million and a total GDP of $27 billion. The International Monetary Fund estimated income per head at $2,468 in 2012, against $1,196 in 2006, when Evo Morales was elected president. Between 1996 and 2005, the economy grew by only 3.3% annually but the IMF projects growth of 5% for both 2012 and 2013. According to the IMF, GDP based on purchasing power parity (PPP) was $54.3 billion in 2012, or $5,016 per head. Total investment as a proportion of GDP now stands at 19.9% against 13.8% in 2006. Inflation was expected to amount to 4.75% in 2012 and unemployment stands at less than 5%. In 2012, general government gross debt as a percentage of GDP was 34.8%, against 55% in 2006. In 2012, the current account balance as a proportion of GDP was 1.78%. In 2011, total government expenditure was estimated to be $10.65 billion. Resources base The country is South America s leading natural gas exporter, supplying its larger neighbours Argentina and Brazil. It is rich in minerals, including lithium, silver, zinc and tin. The government has a long-term agreement to sell 30 million cubic metres a day of natural gas to Brazil until 2019. The current contract with Argentina establishes a minimum export of 11.6 million cubic metres daily since 2012. According to the United States Geological Survey, Bolivia has 5.4 million tons of lithium, the largest known reserve of any country in the world (Chile only has three million known tons of lithium and the US410,000 tons). In 2011, the country s natural gas reserves were estimated to be 281.5 billion cubic metres. Bolivia is now working on major projects with foreign partners to exploit the lithium and gas reserves, as well as iron, urea and ammonia. Since December, Bolivia has diversified its exports matrix with LPG (liquefied petroleum gas). Bolivia has in place an energy agreement with Paraguay and Uruguay to provide those markets with LPG as from 2013. The first one only demands a daily volume of 109 MT. Argentina is another important market for the national production of LPG. YPFB is building two plants to separate liquids which will significantly increase LPG production. Rio Grande s plant, which is due to be completed in 2013, will process 350 MT daily, whilst Gran Chaco s plant will produce daily an additional 2,200 MT as from 2014. Bolivia is classified by the World Bank as a lower-middle income country. In 2011, the country s human development index was reported at 0.663, comprising a health index of 0.735 and an education index of 0.749, ranking within the group of medium human development. According to the Central Intelligence Agency s World Factbook, in 2011, services accounted for 50% of the economy, industry 40% and agriculture 10%. In 2011, the country had a total labour force of 4.6 million: 32% worked in agriculture, 20% in industry and 48% in services. The country s main agricultural products are soybeans, coffee, coca, cotton, corn, sugarcane, rice, potatoes, Brazil nuts and timber. Bolivia is the world s third biggest producer of coca after Colombia and Peru. Its main industries are mining, smelting, petroleum, food and beverages, tobacco, handicrafts, clothing and jewellery. In 2009, its main trading partners were Brazil (which received 33.3% of Bolivia s exports), Argentina (11.6%), the US (9.6%), Japan (5.9%), Peru (5.0%) and South Korea (4.5%). In 2011, some 23.5% of its imports came from Chile; 23% from Brazil; 10.3% from Argentina; 10% from the US; 6.9% from Peru, and 5.8% from China. Its main imports are petroleum products, plastics, paper, aircraft and aircraft parts, prepared foods, automobiles and insecticides. In 2011, the country s stock of foreign direct investment amounted to $7.37 billion and its total external debt was $5.45 billion, according to the CIA. The main ethnic groups are Quechua, which makes up some 30% of the population, mestizo (mixed white and Amerindian ancestry, 30%), Aymara (25%) and white (15%). The country has three official languages: Spanish, spoken by 60.7%; Quechua (21.2%), and Aymara (14.6%), according to the 2001 census. The 2012 census has already been carried out, with preliminary results expected in March 2013 and definite ones in June that year. According to 2012 estimates by the CIA, 34% of the population are aged between zero and 14 years, amounting to 1.79 million males and 1.72 million females. Some 61% are aged between 15 and 64 years (male 3.08 million/female 3.1 million). Around 4.7% of the population are aged over 65 years (male 215,700/female 271,963). In 2012, the median age was estimated to be 22.8 years (22.1 years for men and 23.5 years for women). In 2012, the country had a

population growth rate of 1.664% and the birth rate was 24.24 births per thousand of population. Some 67% of total population is urban. Life expectancy is 67.9 years. The biggest cities are La Paz (1.6 million inhabitants), Cochabamba (1.6 million), Santa Cruz (1.58 million) and Sucre (281,000). On a different path Bolivia follows the New Economic, Social, Communitary, Productive Model. The Bolivian government believes the industrialized countries of the northern hemisphere are in a precarious position because of the severity of the energy, food, climate and financial crises facing the planet. The financial collapse of the US, Ireland, Greece and other countries is proof of this. It thinks that the failure of macroeconomic policies in many countries casts doubt on the prevalence of the capitalist system. Luis Arce, the Bolivian minister of economy and public finance, says: Bolivia has weathered such turbulence with some comfort, because five years ago the administration of President Morales adopted measures to stimulate the domestic market and not rely exclusively on the external one. Furthermore, the state assumes a leading role in planning the economy, by managing public companies, investing in the productive sector, The government believes this can only be achieved by the transfer of the economic surplus derived from the traditional mining and energy sectors to the income-generating sectors. The state acts as the redistributor: it helps the country leave the primary export model behind and to build an industrialised and dynamic economy. Arce adds: The crises of capitalizm are opportunities for Bolivians, since the country has the resources to become a major producer of energy and food, the two major weaknesses of the capitalist system. Therefore, reaching the status of food and energy producer should be the country s strategy to tackle these problems, without neglecting the other sectors of the economy. Ratings upgraded Bolivia s strong economic growth combined with low inflation is testament to the model s success. In 2012, all three main credit ratings agencies upgraded Bolivia and it is now only a few notches below investment grade. In fact, one of the government s main goals is to achieve investment status. In June, the IMF published a report on Bolivia which praised the country s economic management. It said that prudent macroeconomic policies, accompanied by strong terms of trade, have allowed Bolivia to achieve impressive economic outcomes in recent years. Exports of goods have Bolivia has weathered such turbulence with some comfort, because five years ago the administration of President Morales adopted measures to stimulate the domestic market and not rely exclusively on the external one financing projects, and regulating the market players. The state has also begun to apply income redistribution policies to reach vulnerable groups that were neglected by previous administrations. All the new powers of the state are aimed at turning Bolivia into an industrialized country through coordinated action by four actors: the public, the private, the community and the cooperative sectors. Their integration constitutes a plural model and represents a plural economy. tripled since 2005, reflecting increased volumes of gas, mineral and agricultural products, and the decade-long boom in commodity prices. The fiscal position strengthened sharply, as higher export receipts, higher taxation of hydrocarbon production and moderate rates of increase in government spending led to substantial fiscal surpluses. The external current account also registered surpluses, contributing to the build-up of a strong reserves buffer, now equivalent to close to 50% of GDP. Changing economic structures The new model has two main pillars: the strategic sectors that generate economic surplus and other industrial sectors that generate income and employment. The model recognizes four strategic sectors that Bolivia counts on to generate an economic surplus for all Bolivians: hydrocarbons, mining, energy and natural resources. These are traditional sectors that supported the out-dated primary export model. However, the government accepts the country cannot change its economic structure overnight. There must be a strategy that is embodied in the new model to break the surplus-export negative cycle. The income and employment generating sectors include manufacturing, tourism, housing and agriculture. However, these sectors are not yet sufficiently dynamic. According to the new model, to make Bolivia a dynamic economy, to create productive transformation and to shift away from the primary export model, much more emphasis must be placed on these four income-generating sectors. Strong results have also been achieved on improving social inclusion and income distribution. Cash transfer programmes have been successful in lowering extreme poverty, while investment in infrastructure has helped improve access to basic services (water and sanitation, energy) and transport (mainly roads). In October, Bolivia issued a $500 million sovereign bond, its first issuance in almost a century, at a 4.875% rate, which was the lowest debut rate in the region. In two hours, the offer received $4.21 billion in bids from 267 investors. It was more than eight times over-subscribed, demonstrating the market s new-found confidence in the country. Some 58% of the investors were brokers while 13% were international banks. The largest portion of the investors base was located in the northern hemisphere. During the past six years, Bolivia has worked hard to improve its economic fundamentals. High commodity prices have helped it to achieve that. Its re-entry into the international financial markets after such a long hiatus is testament to the fact that the country has turned the corner, economically and socially. 2013 Guide to Bolivia 3

Successful implementation of a plural economy Interview with Luis Arce, Bolivian minister of economy and public finances. By Jason Mitchell Q: What is Bolivia like today? I think we have to compare Bolivia today with what it was like before 2006 when Evo Morales, the president, first came to power. There are two separate periods. Before 2006, Bolivia was a very poor country with a highly dollarized economy. The economy was market dominated and run according to the neo-liberal model. Most people didn t have any say in the running of the economy. However, on January 22, 2006, Evo Morales was inaugurated as the new president. He won some 54% of the popular vote, while in previous elections the main parties only scored 30% or 27% of the vote and had to form a coalition in order to govern the country. Before the elections those parties had been enemies; suddenly they had to become friends to make up the coalition. Since the new period under Evo, the governance has had a very high acceptance level among the people. The government has eliminated the neo-liberal model and adopted the new economic, social, communitary, productive model, a model for all Bolivians, constructed by Bolivians. Luis ArCe, biography Luis Alberto Arce Catacora occupies the role of minister of economy and public finances of Bolivia, to which he was appointed in 2009. He was previously the minister of treasury of Bolivia, a position he held since the start of Evo Morales government in 2006. Minister Arce Catacora joined the Central Bank of Bolivia in 1987, and he developed his professional career in this institution until January 2006. He has a masters degree in economics from the University of Warwick in the UK, where he studied between 1996 and 1997. Prior to this, in 1991, he graduated in economy at the University Mayor of San Andrés (UMSA) in La Paz. In 1984, he also graduated in accountancy from Bolivia s Banking Education Institute. One of the key points of the model had been to include the indigenous community in the running of the country, to ensure that they have a strong voice in the government. Under the neo-liberal model, they had been excluded from any role in the government. Under the previous governments, the minister of employment had been a businessman; under the current government, he is a former senior member of the workers union. The indigenous community is also very well represented in the new Congress. This is a sign of the country s new-found commitment to justice and a plural economy. Many indigenous people are very well educated and have studied overseas. The indigenous peoples make up between 30% and 60% of the population, according to the definition. The country has a large mestizo population, too, and around 15% has Spanish descent. Q: Could you describe the main elements of the new model? The model is based on Bolivia s natural resources, the country s development is based on the successful exploitation of those resources, but it must be done in a way that benefits all Bolivians. An important part of the model is redistributive, too. We want to ensure that the situation of the country s poor is alleviated. We don t want to destroy the country s rich community but we do want to ensure that resources are redistributed in a better way. The government introduced the bono Juancito Pinto, an annual transfer that is made to the parents of children who attend school. This is a way of reducing the desertion rate and improving the literacy rate. One of the other main pillars of the new model is the presence of the state as the most important player in the economy. The state makes plans for the future and ensures that all Bolivians are the beneficiaries. Bolivia has never had a strong entrepreneurial class; the state has taken on a dynamic role and pushes forward with projects that benefit the country. It s not true that the private sector is more efficient than the public. In the 1990s, many national enterprises in the country were privatized, the assets were acquired by international companies. For example, the national airline Lloyd Aéreo Boliviano was privatized but since then we have seen the company break down. The private sector does not provide a panacea. However, it s important that the public sector demonstrates that it can be as efficient as the private sector. An example of how the public sector can be successful is in banking: Union Bank, which is now a stateowned bank, used to be one of the least important banks in the country but is now in third place behind the private sector banks, Banco Mercantil Santa Cruz and Banco Nacional de Bolivia. This goes to show that a public sector bank can be as well managed as a private sector one. Q: Bolivia has some of the world s largest lithium reserves can you explain how you plan to exploit them and the importance of the mining sector generally to Bolivia s economy? It s true that the lithium reserve under the Uyuni salt flats in the

country s south-west is a very important resource but the country has many minerals, including iron, hydrocarbons, tin and zinc. The state-owned mining company, Comibol, produces, industrializes Luis Arce, Bolivian minister of economy and public finances and exports the resources. Yacimientos Petrolíferos Fiscales Bolivianos-Corporación (YPFB) connects Bolivia to the port. Bolivia is in charge of the management is the main state-owned enterprise in charge of the exploration, of this port. The government is also looking at the idea of production, transport and refining of oil and gas. There are many constructing a new port on the Paraguay river in the south-east of privately owned mines in Bolivia, too; for example, Japanese the country. This would enable us to transport our goods through companies have a strong presence in the mining sector. Paraguay and Argentina and eventually reach the Atlantic ocean. Bolivia enjoys very good relations with Paraguay and Argentina, so Under the old model, Bolivia would just mine or exploit the mineral this port is a real possibility. and then export it. Today, we want to ensure that the country is much more involved in the supply chain through the application It is true that relations between Bolivia and Chile are not so good. of technology. We want to participate much more in the refining A war took place between the two countries, called the War of the process. In this way, we can help to turn Bolivia into an industrialized Pacific, in 1879 and Bolivia lost its Pacific presence to Chile. In 1904, a country. In September this year, YPFB announced that it had Treaty of Peace and Friendship was signed between the two countries, awarded a contract to construct a petrochemical fertilizer plant which should have enabled Bolivia to transport its goods through in Carrasco, Cochabamba province, to the South Korean company the coastal city of Arica but, in reality, there has been some tension Samsung Engineering. The government is looking for a similar between the countries in how the treaty should be applied. sort of partner to exploit the lithium reserve which also has a significant potassium reserve situated by it and the president s Q: How is Bolivia improving its airport office is in charge of arranging this contract. An announcement infrastructure? is expected within the next few months. It s true that the reserve The country is building a major new international airport at is vast, is valued at billions of dollars, and has the potential to Cochabamba in the very heart of Bolivia. This will be only a couple transform the Bolivian economy. of hours away from La Paz and will be constructed within the next few years. The country also wants to become much more involved in the hydroelectric sector. At the moment, Brazil and Argentina buy our Q: Recently, Bolivia was invited to become a full gas and then convert it into electricity back home. It would be member of Mercosur, the economic and trading better if Bolivia could industrialize the gas and then export it as bloc whose members include many south American electricity directly to those countries. There is also great potential to countries. Will Bolivia take up this offer? produce organic fertilizer from coca leaves and there could be a big Currently, Bolivia has observer status at Mercosur and it is too early international market for that type of fertilizer. to say for certain that the country will become a full member. The invitation was extremely recent and there are many factors that need Q: Bolivia is a landlocked country. Does that present to be thoroughly analysed. Having said that, Mercosur is a huge market challenges and how does the country manage to whose members make up 80% of the South American economy. It export its products? is true that some of the smaller members, including Paraguay, have In October 2010, Peru granted Bolivia the right to lease a 1.4 square complained about how bigger members of Mercosur have treated mile patch of land on the Pacific ocean near the southern Peruvian them. However, Bolivia is different from Paraguay: the Paraguayan port of Ilo for 99 years. Bolivia is considering investing up to $600 economy is mostly agricultural whereas Bolivia also has a great deal of million to develop a bigger port with modern infrastructure. It natural resources. Bolivia is also a member of the Andean Community would be able to accommodate large ocean-going vessels. The of Nations, a customs union that also includes Colombia, Ecuador and government is also contemplating improving the railroad that Peru. We have to consider how Mercosur membership would impact 2013 Guide to Bolivia 5

on our role in the Andean Community. Some commentators have remarked that if there is poverty and poor countries, then the poverty continues, but if there is poverty and richer countries, then the poverty should start to be alleviated. I think there is some truth to that. Q: In October, Bolivia issued its first sovereign bond in a century. The $500 million transaction was well received by the markets. Why did Bolivia issue the paper and are you surprised by its success? The issue was oversubscribed by eight times, so, yes, it was highly successful. It was a very good way for us to go out there and say to people that this country has its own social and economic model, which for example is quite different from that of Venezuela. We were able to explain to investors the key aspects of our development model and to highlight the country s solid economic fundamentals, including high economic growth and a low inflation rate. The main goal was to insert Bolivia in the international financial markets again. It enables the country to diversify its sources of financing. The roadshows which took place in a number of the world s most important financial centres were very constructive and enabled us to show just how well the economy is doing. The World Bank is now classifying Bolivia has a lower-middle income country rather than a poor one. In many ways that is good news and shows how the country s economic and social conditions have improved under Evo Morales. However, the bad news is that the country will no longer be able to receive loans from the World Bank, the Inter-American Development Bank and other multilaterals on concessionary terms. In future, it will only receive loans at the market rate. The country receives about $1 billion in loans a year. Currently, 70% of the country s loans are granted at market rates and 30% at concessionary rates. This bond has helped to create a benchmark for Bolivian credit and we expect some of the state-owned companies, quasi-nationals, to take advantage of this and issue their own bonds in time. The crisis in Europe has put investors off investing in that region and they saw the The government created the programme My first dignified job, with the purpose of encouraging the development of skills of low income people from both urban and suburban areas, allowing them to find and maintain formal employment rating for Bolivia by one notch to BB-. Fitch s adjustment brings it in line with Standard & Poor s BB- rating and Moody s Ba3 rating. Would Bolivia like investment grade one day? Bolivia has been upgraded by the agencies a number of times during the past few years. Of course, we would be delighted to have investment grade and we believe the conditions are now in place to receive it. Sooner or later, the country will be upgraded to investment status. Q: At the start of Evo Morales s government, a number of privately-owned companies were nationalized. Why did that happen and has it affected foreign direct investment into Bolivia? In the 1980s, a number of state-owned companies were privatized but the process was not handled properly and national assets were passed over to the private sector. The recent nationalizations were part of the process of recovering those assets for the country s benefit. Some of the The private sector does not provide a panacea. However, it s important that the public sector demonstrates that it can be as efficient as the private sector opportunity in Bolivia. Bolivians in Europe thought that the country could only achieve a yield of around 8.5%. In the event, it achieved a yield of 4.875% and I am not sure what they are saying now. It was a very good yield and we were not expecting one quite as favourable. Everyone in the government was in favour of issuing the bond because it was felt it was the best way of us showing the world how well the country has been doing. I have asked the national assembly to authorize the government to issue another $500 million bond. Q: In October, Fitch, the credit ratings agency, upgraded its long-term sovereign foreign currency companies that were nationalized were owned by Brazilian firms but the Brazilians are now back in Bolivia and investing again. Q: Recently, some cases of presumed corruption among government officials have come to light is corruption a problem in Bolivia? During previous governments, a lot more corruption took place. These days, there may be some isolated cases and the media make a huge thing out of them. The level of corruption is much lower today and nowadays if someone is found to be corrupt, they are sent to prison. That did not happen before.

Bond issue sets the seal on economic transformation A successful sovereign bond issue, praise from the IMF, rising growth rates and falling unemployment confirm the progress made by Bolivia s economy in the seven years since Evo Morales was elected president. By Jason Mitchell In October, Bolivia issued its first sovereign bond in almost 100 years and the Ministry of Economy and Public Finances has asked the national Congress for permission to issue another soon. Strong fundamentals The $500 million 10-year bond yielded 4.875%. The offer which was eight times over-subscribed was managed by Goldman Sachs and Bank of America Merrill Lynch. Investors were enthusiastic about the Income per capita doubled between 2005 and 2011. The proportion of the population living on less than $1 a day has declined from more than 38% to around 24% during the six-year period. The proportion on moderate incomes increased to 60% in 2011 from 48% in 2007. According to Nomura, the Japanese bank, favourable terms of trade helped the country enjoy average current account surpluses of 11% of GDP between 2006 and 2008, which declined to 2.2% in 2011. Bolivia s sovereign bond issue in the international capital markets established a benchmark for Bolivian public and private companies to access those markets bond not only because of its scarcity value but also because of the strength of the Bolivian economy. The yield compared favourably with paper issued by other countries in the region. On the day the bond was issued, Venezuela s 2022 bonds yielded 11.5%. Argentina s short-dated global 2017s yielded around 8.75%, while Ecuador which went through a voluntary default in 2009 had 2015s trading at around 8%. Since 2005 when Evo Morales was elected president, Bolivia s economy has expanded by 4.7% a year and total GDP now stands at $26.7 billion, according to the International Monetary Fund. The IMF projected that the country s inflation rate would be 4.75% during 2012. The unemployment rate is less than 5%. General net debt is only 12.2% of GDP today, against 42% when Morales came to power. Edwin Rojas, deputy minister of treasury and public credit Bolivia s international reserves have grown seven-fold since 2005, reaching $13 billion today or a high 50% of GDP. In April 2009, the United Nations Educational, Scientific and Cultural Organization (Unesco) congratulated Bolivia on wiping out illiteracy in the country. Evaluation and qualification of the economy During 2012, Bolivia also benefited from better credit ratings. Fitch and Standard & Poor s both upgraded the sovereign to BB- last year, from B- in 2004. Moody s assigned the country a Ba3 rating, up from B3, in 2003. In a period of five months, the three main credit rating agencies upgraded Bolivia s rating. Bolivia cooperates closely with the IMF when the fund undertakes bilateral surveillance of the country s economy every year under Article IV of the agency s Articles of Agreement. In its Article IV Consultation report in June, the IMF projected Bolivia s real GDP growth at 5%, has praised the impressive economic outcomes in recent years such as the tripling of exports since 2005, the expansion of the financial services to the population at large, substantial fiscal surpluses, prudent macroeconomic policies and sustainable levels of debt. The sovereign debt experience After a century, Bolivia returns to the international capital markets as an attractive alternative to investors, demonstrating good levels of economic growth and social improvement under President Evo Morales economic model over the past six years, said deputy 2013 Guide to Bolivia 7

minister of treasury and public credit Edwin Rojas, when asked about Bolivia s position at the moment of the issuance. He also complimented the very strong teams at the banks that managed the offering. The crisis in Europe has discouraged investors from putting their money in that region and this has created a window of opportunity for emerging economies, including Bolivia. We knew that the capital was out there and we seized the opportunity. The main goals of this bond issue were to diversify the sources of funding, and to position the Bolivian economy in the international markets. Once Bolivia qualified as a mid-income country, the amounts granted by the traditional sources of credit became insufficient Rojas remembers that the good reaction from the investors after the roadshow that covered Zurich, London (by phone), Boston, New York, Los Angeles, Santiago, Lima and Bogota as well as the analysis of the international financial framework encouraged the issuance following the roadshow. The deputy minister highlighted that one of the reasons to which he attributes the success of the bond issue is the development and deepening of the terms, rates and currencies in the domestic market There has been a high level of public investment, redistribution has taken place, and people are better off to cover the country s needs. Bolivia s sovereign bond issue in the international capital markets established a benchmark for Bolivian public and private companies to access those markets. as a source of financing. In addition, he referred to the ISO9001:2008 certification received by the debt and fiscal indicators, showing transparent and appropriate management. Rojas highlighted that the technical team visited many countries in Latin America (Dominican Republic, Nicaragua, Guatemala, Colombia and Argentina) to learn from those borrowers experiences. The team was permanently following the international markets, exchanging views with the experts from other international organizations. One of the most talked about topics when preparing the offering memorandum and roadshow was the nationalization issue. We took all the necessary time to convey the message to investors that the nationalizations in Bolivia have a strategic approach rather than being expropriations; it was made clear that the companies that were nationalized had previously belonged to the state, and no private enterprise is under the risk of being nationalized, says Rojas. We consider that the issue was understood given that the levels of FDI are currently in their highest historical levels, and given the strong demand that our bonds had. It has been growing very strongly, there has been a high level of public investment, redistribution has taken place, and people are better off. Getulio Vargas Foundation, the Brazilian think-tank, says that Bolivia is a good destination for foreign direct investment. In its industrialization process, as from December, Bolivia will cease to be an importer of liquid gas and will export its first 1,000 tonnes to Paraguayan companies The success of Bolivia s bond issuance this year took some analysts by surprise but the bond s strong reception reflects the government s efforts to strengthen the economy and improve public finances. Bolivia has now set a yield curve, which will encourage the country s quasi-national companies especially in the mining and hydrocarbons space to tap the markets, too.

Reduced risk, increased credibility Economists sentiment towards Bolivia has sharply improved in recent years, according to the results of Euromoney s Country Risk Survey. By Andrew Mortimer In recent years, the results of Euromoney s Country Risk Survey show Latin American sovereigns receiving higher ratings from economists than ever before, with improved scores for the region s top borrowers across a range of political, economic and structural risk indicators. The ratings indicate a convergence trend between the scores of the region s highestrated sovereigns and their counterparts in Europe and North America. In keeping with the region, Bolivia s position in Euromoney s Country Risk Rankings has improved significantly in recent years. The sovereign s has risen by 43 places from 144 in September 2008 to its present position of 101. Economic growth story A main driver behind Latin America s improvement has been rising scores in the survey s economic assessment. In part, this is a story about economic growth. Rising global commodity prices have also driven growth across the region during the past decade, with a concomitant improvement in per capita GDP and government debt ratios. As with other Andean economies, natural gas exports and minerals remain central to the economy, but there is also growth in other sectors. According to the minister for development planning Viviana Caro, manufacturing and agricultural production are expanding faster than the country s established sources of export income. In Bolivia, high global energy prices have boosted economic growth. This growth also came as a result of implementing, since 2006, a new policy for hydrocarbons and increase of domestic demand. The country s ECR survey score for economic outlook, though slightly below the regional average, remains a supportive factor in its overall country risk score. However, the high scores awarded to Latin American sovereigns by ECR economists also reflect the improved macroeconomic policy framework adopted by the region s most successful countries. New generation Latin America s new generation of policymakers appears to have grasped the lessons of the sovereign debt crises of past decades, enacting legislation to ensure sustainable government debt levels, while taking effective measures to tackle inflation. The IMF, among others, has praised Bolivian policymakers prudent macroeconomic management of recent years, and noted in a report last year that Bolivia is in a solid position to sustain economic growth and poverty reduction over the medium term. With growth in 2012 set to reach 5%, slightly lower than the 5.2% recorded in 2011, economic activity remains robust amid strong domestic demand growth. Investor demand for yield and Bolivia s strong macroeconomic credentials overcame any lingering political risk concerns in the country s historic return to the debt capital markets last year, as the Andean sovereign got a yield inside 5% in its return to the debt capital markets after nearly a century. Improved investment case A closer look at Bolivia s scores in the ECR survey, in which more than 400 economists worldwide are asked to rate countries across a range of political, economic and structural criteria, is largely supportive of an improved investment case for the sovereign. In the political risk section, for instance, economists assessment of the risk posed by Bolivian state institutions has improved significantly since September 2010. Scores in the survey s indicator for information access/transparency, another important measure of state credibility in the eyes of financial markets, have also risen over the same period. The central bank has also made progress in alleviating market concerns over monetary policy. Scores in the survey s indicator for monetary policy/currency stability are now above the Latin American average. However, the survey results are not unequivocally positive. While the government has clearly made progress in convincing investors to return to the country, its track record of nationalization translates into below-average (ie, riskier) scores for political risk than the region as a whole. Survey scores for government interference/repatriation of capital and regulatory environment (both less than three out of 10) remain key weaknesses in economists assessments. Nevertheless, survey results in recent quarters have suggested that Bolivia s progress may be accelerating. In the third quarter of 2012, Bolivia enjoyed the strongest improvement of any Latin American sovereign in the ECR rankings. The sovereign climbed 10 places, after its overall assessment score was bolstered by a substantial improvement in the country s access to capital markets indicator a key survey measure of market sentiment. This leaves the sovereign lying in tier four in the rankings on a global rank of 101. This improvement was in line with that seen in its overall ECR score, which improved by 2.3 points. Although still lower than the Latin American average, the improved sentiment highlights the progress of the economic and structural reforms being undertaken by the current administration. Eight analysts took part in Euromoney s 2012 Country Risk Survey for Bolivia, including: Juan Ruiz (BBVA), Andrea Keenan (AM Best), Phillip Mayer (Erste Bank), Patricia Alborta (CAF), Martin Brandmeier (Standard Bank), Alberto Bonadona (University of San Andres) and Mathias Laureus (CTPEA). 2013 Guide to Bolivia 9

FDI does Bolivia the power of good Bolivia s beneficial geographic position and vast wealth of natural resources continue to attract foreign direct investment, particularly in the oil and gas sector. By Jason Mitchell Bolivia is attracting more and more foreign direct investment (FDI), and the oil and gas sector is securing the largest sums. For the first six months of 2012, the country attracted $659 million in FDI, with $418 million destined to oil and gas, followed by $80.7 million to industrial manufacturing and $47.6 million to financial services. During 2011, Bolivia secured $1.03 billion in FDI: $383 million was destined to the oil and gas sector; $238 million to mines and quarries; and $216.7 million to industrial manufacturing. The FDI volumes for 2011 and 2012 are far higher than the $390 million annual average the country attracted the previous decade 2000 to 2010. And FDI inflows into Bolivia doubled between 2005 and 2010. These figures tell that Bolivia continues to be an attractive destination for investment, says Alicia Bárcena, executive secretary of the United Nations Economic Commission for Latin America and the Caribbean, on a trip to La Paz. The plant is forecast to produce 2,100 tons per day of urea, after processing natural gas to produce ammonia and urea. Urea, widely used in fertilizers for agriculture, is expected to increase Bolivia s cultivation area from 2.5 million hectares to 105 million hectares. Samsung Engineering is responsible for the front-end engineering design, engineering, procurement, construction and precommissioning on a lump-sum turnkey basis, with completion set for 2015. Furthermore, operation and maintenance support will continue for two years after completion. Stunning environment The world s biggest lithium reserve lies under the Uyuni salt flats in southern Bolivia. The country s ministry of economy values the deposit at billions of dollars and it has the potential to transform the Bolivian economy. However, the government is determined to protect the area s stunning natural environment and the president s office is weighing up the options, including pairing up with an international partner to develop the project. Bolivia benefits from the fact its geographic position lies in the heart of South America. It has frontiers with Peru, Brazil, Paraguay, Argentina and Chile. Bolivia has the second-largest oil and gas reserves in South America, after Venezuela. Argentina and Brazil represent important markets for the country s oil and gas. It signed its first contract to sell natural gas to Argentina in 1968, with sales taking place between 1972 and 1999, and resuming again in 2004. The contract with Brazil began in 1999 and is valid until 2019. Important export market The construction of the Bolivia-Brazil pipeline helped to reinforce Bolivia s position as an energy provider to the region. Some $2 billion was spent on constructing the pipeline, including $430 million on the Bolivian side. Brazil is now the country s most important export market for natural gas. It is forecast that the country s natural gas reserves will last for another 110 years and its oil reserves for around 70 years. Bolivia has around five times more natural gas than it needs to meet all current domestic and export demands, so it has substantial capacity to expand its future exports. A large number of other investment projects are under way in the infrastructure and mining sectors in Bolivia. Some $117 million is being invested in the installation of national satellite Túpac Katari; $30.2 million in the construction of hydroelectric plant Misicuni; $23.7 million in the construction of the electricity transmission line at Gran Chaco Tarija; and $10 million in the construction of structural measures for rivers in Grande, Pirai, Chane, Surutú and Yapacani (Santa Cruz). The transport sector is also securing large sums of investment: $139 million is being spent on the construction of a cable car between El Alto and La Paz; $83.8 million on a dual-lane road between La Paz and Oruro; $43 million on the construction of a highway between Condo-K, Huancarani and Uyuni; and $29.8 million on the improvement and paving of the Yucumo highway. In the mining sector, $69 million is being spent on the integrated development of the mine at Salmuera del Salar de Uyuni; and $7.8 million on the construction of zinc, lead, silver and copper refining plants at Oruro, La Paz and Potosí. Bolivia, Brazil and Chile have been considering the idea of a new highway that would connect Chile with Brazil via Bolivia but the plan has not yet been authorized. This would substantially reduce transportation times between Chile and Brazil. In September, Samsung Engineering, Korea s largest engineering company, signed its first Latin American contract with Yacimientos Petrolíferos Fiscales Bolivianos, Bolivia s state-owned oil company, to build an $843 million fertilizer plant in the city of Entre Rios, Cochabamba state. Bolivia has signed bilateral investment treaties with more than 25 countries and these help to improve investment flows between the small South American country and the rest of the world. Bolivia is blessed with some of the greatest natural resources in Latin America and these reserves could improve the economy dramatically. The country represents a wealth of opportunities for the right kind of investor, who is prepared to work with the state and is sensitive to Bolivia s beautiful natural environment.

Magnet for visitors Bolivia s varied terrain and rich heritage make it an increasingly popular tourist destination. By Jason Mitchell Tourism is one of the most important industries in Bolivia and contributed $378 million to the annual economy in 2010, according to the vice-ministry of tourism and the Central Bank. During 2010, the country attracted tourists, especially backpackers, from all around the world. Peru provided the most visitors to the country, followed by Chile, Argentina, Brazil, Spain, the US, Paraguay, Germany, France and the UK. Some 48% of the tourists declared they had visited Bolivia for vacation, recreation or diversion; around 27% were visiting family or friends; and 8% were coming on business or for professional reasons. Foreign visitors stayed on average 13 days in the country: Spaniards stayed the longest (29 days), followed by Israelis and Belgians (21 days), the Dutch (18 days), Italians (17), US nationals (16) and Canadians (15). The average spend by visitors non-residents during their stay was $712.60, while the average daily spend was $55. The biggest average daily spenders were the Mexicans ($86), followed by Brazilians ($71), Chileans ($69), Swiss ($68.70) and Colombians ($68.50). Tibet of the south Bolivia is one of the most beautiful, enchanting countries in South America and is often described as the continent s equivalent of Tibet or Nepal. It shares borders with Brazil in the northeast and east; Paraguay in the east and southeast; Argentina in the south; Chile in the west; and Peru in the west and northwest. It has a total area of almost 1.1 million square kilometres, nearly three times the size of the US state of Montana. Its water surface amounts to 14,190 sq km. The stunning, landlocked country is split into three main geographical areas: first, the high mountains with their high plateau, known as altiplano in Spanish. Secondly, the intermediate valleys between the mountains and the lowlands and, thirdly, the eastern plains of the Amazon and River Plate systems. Bolivia attracts foreign tourists for a variety of reasons. Many young backpackers are on gap years, a break before or after university, and the country has become an important part of their South American itinerary, which often includes Peru and Colombia as well. Bolivia has the reputation of being one of the cheapest countries in which to stay in Latin America, and this helps it to attract visitors on a limited budget. However, the country also manages to lure a large number of older, middle income visitors, who are fascinated by its outstanding natural beauty, its beautiful colonial cities, its traditional cultures and its ancient sites. Eco-tourism and adventure Bolivia is becoming an important centre of eco-tourism and of adventure sports, as well. Trekking, rafting and cycling are popular sports among tourists. At 6,000m, the country has the highest ski slope in the world at Chacaltaya, which is near La Paz, the administrative capital. Among the popular tourist spots are: the pre- Inca ruins of Tihuanaco; Lake Titicaca, the highest navigable lake in the world; the well preserved colonial cities of Potosí and Sucre; and the colonial Jesuit missions in the eastern lowlands. La Paz enjoys a rich cultural life, important museums, churches, a street market and a wide variety of activities for foreign visitors. It also has a vibrant nightlife, catering to foreign backpackers and others. It has a solid tourist infrastructure, with a wide variety of hotels and hostels. The city has 1.7 million inhabitants and strong indigenous influences, but at the same time is cosmopolitan. It is 3,600m above sea level, which ensures that there are no wide climatic variations during the year. In the city, the days are often sunny with agreeable temperatures and the nights are cool, although it is possible soon to reach more extreme temperatures, including tropical and snowy conditions. Bolivia is a very popular destination for tourists La Paz has a wide variety of tourist attractions: among the most important are the Government Palace, located in Murillo Square, the city s main plaza. The building was constructed in 1845 and is a fine example of late-renaissance architecture. The presidential offices lie inside. Another important building is the church of San Francisco, whose construction was completed in 1753. Built in a Baroque style, its interior is distinguished by its wooden altarpiece adorned with gold. Mystical tradition Bolivian culture is strongly linked to its ancient indigenous roots from Aymaras, Quechuas and other ethnic groups native from both East and West, which has created a strong mystical tradition. 2013 Guide to Bolivia 11

The Witches Market is one of the most fascinating places to visit in La Paz. This unique market stretches for several blocks around the streets, Sagárnaga and Linares, in the city centre. It is throbbing with stalls that sell potions, amulets, herbs and objects necessary for ancestral rituals. There you can find llama foetuses and dried frogs for Aymara rituals, as well as soapstone figurines and aphrodisiac formulas. Furthermore, yatiri, or witch doctors, are often found in the market, offering their fortune-telling services to locals. They are identifiable by their dark hats and coca pouches. Just a few hours from La Paz, lies Lake Titicaca, one of the world s most stunning and most celebrated Alpine lakes. The pristine lake with its glittering blue waters extends for 8,370 sq km. It has an average surface elevation of 3,812m and an average depth of 107m. The lake is made up of two almost separate sub-basins linked by the Strait of Tiquina, which is 800m across at the narrowest point. The western part of the lake lies within the Puno Region of Peru and the eastern side is located in the La Paz Department of Bolivia. There is a strong exchange of people including tourists and commerce between the cities of Puno on the Peruvian side and Copacabana on the Bolivian side. slope of the Andes, known for its humidity and heat. The road is celebrated worldwide for its extreme danger and in 1995 the Inter- American Development Bank billed it as the world s most dangerous road. It is popular with adventure cyclists from around the world. Salar de Uyuni is the world s largest salt flat and also one of the greatest attractions that Bolivia has to offer. With a dimension of 10,582 sq km, it is in the Potosí and Oruro departments, near the crest of the Andes. It has an elevation of 3,656m above mean sea level. The salt crust is several metres in thickness and is extraordinarily flat. The world s largest lithium deposit lies under the flat; the Bolivian government is attempting to extract it without damaging the stunning natural environment. It is famous for its cactus island a large oasis in the middle of the flat brimming with different species of cactus and its hotel made from salt. Foreign tourists are enchanted by the pink flamingos that gather in small lakes close to the flat. Sucre the constitutional capital of Bolivia and the capital of the department of Chuquisaca must be one of the most beautiful cities in the Andes. Full of whitewashed colonial buildings including an abundant quantity of churches and administrative buildings it is Bolivia has the reputation of being one of the cheapest countries in which to stay in Latin America, and this helps it to attract visitors on a limited budget. However, the country also manages to lure a large number of older, middle-income visitors Lake Titicaca holds large populations of waterbirds and was designated as a Ramsar Site in 1998. There are several endangered species including the huge Titicaca water frog and the flightless Titicaca grebe. The lake has a large number of islands, the most famous being Isla del Sol (Island of the Sun) and Isla del Luna (Island of the Moon). Many foreign tourists travel from Copacabana to the islands and spend a couple of nights there, enjoying the wild landscapes and Inca ruins. Copacabana is a small, lively town (only 7,000 inhabitants) and attracts backpackers and other tourists from many countries. It has a wide variety of hotels and hostels. Many Argentines and Chileans work in the tourist trade in the town. There are plans to open an airport close to the town, which should improve tourist flows significantly, especially if air links with Cuzco in Peru (the closest city to Machu Picchu) and La Paz are established. World s most dangerous road One of the most popular tourist attractions in Bolivia is the so-called Death Road, a 56km winding, cliff-hanging road northeast of La Paz, which connects with the Yungas region, a forested area on the eastern the home city of the Catholic church in Bolivia. It enjoys a temperate climate and one of the oldest universities in the new world. Other attractions include the city of Cochabamba, often called the city of eternal spring, and the dynamic, bustling city of Santa Cruz, the large urban centre of the eastern lowlands, vital to Bolivia s coca trade and agribusiness. Many local fiestas draw foreign tourists: one of the best known is La Diablada in Oruro city during carnival week. New attractions for some tourists include the place where the Marxist leader Che Guevara was captured and mortally wounded and the village of San Vicente on the altiplano where the US outlaws, Butch Cassidy and the Sundance Kid, were ambushed and killed in 1908. Bolivia has an astonishing mix of natural beauty, flora and fauna, culture, history, folklore and ancient ruins. It has become of one of the most important tourist destinations in Latin America and looks set to remain one for many years to come.