IMF EXECUTIVE BOARD CONCLUDES 2013 ARTICLE IV CONSULTATION WITH BOLIVIA
On January 27, 2014, the Executive Board of the International Monetary Fund concluded the 2013 Article IV consultation with Bolivia.
The IMF Board stated, “Good macroeconomic performance and active social policies since the mid-2000s have helped Bolivia to nearly triple income per capita and reduce poverty. In recent years, the economy benefitted from high international commodity prices and rising volumes of natural gas exports. Coupled with twin surpluses in the fiscal and external accounts, net international reserves have increased to almost 50 percent of gross domestic product (GDP), providing ample buffers against external shocks. Social policies have pursued ambitious redistributive and poverty reduction goals, increasing living standards of vulnerable households.”
The Board ‘commended the authorities’ progress in reducing poverty. However, they called for “continued efforts to address longstanding social challenges, which could be grounded in a comprehensive evaluation of existing programs. They also noted that the changing world hydrocarbon market calls for broadening the economic base and raising productivity to sustain strong growth. In this regard, Directors emphasized the importance of improving the business climate, including by creating a predictable legal framework, to promote private sector activity.”
NEW INVESTMENT LAW
It appears that Bolivia has been following some of the ‘recommendations’ from its annual economic reviews by the monetary fund. On April 4, President Evo Morales signed an investment law, which creates a new framework for foreign investment in Bolivia. However, while the new law seeks to encourage foreign investment and provide guarantees to international firms, it prioritizes domestic development and gives precedence to national norms over international courts in case of arbitration.
The new investment law was enacted to attract foreign capital, promote economic growth and create jobs. Before enacting it, the Bolivian legislation had worked for nearly two years in consultation with the private sector and, in recent times, had prompted meetings between the Bolivian parliament and the European Union (EU), which had asked several times for the government to clarify the rules governing foreign investments.
In his speech, Mr. Morales said that the investment law is not only an instrument to provide legal certainty for companies to make a profit with their investments, but mainly to protect the life of its citizens and promote their economic development. “Foreign investors asked us to ensure legal certainty and profits, but legal certainty for us is to ensure human life,” said Mr. Morales. “With this law, we will generate income which will be distributed to all Bolivians…” “This is a very important law to ensure investment, and capital investment will always allow economic growth. It is important for us to enact this law in order create new jobs…” added the president.
Mr. Morales said that from this point on there would be government incentives for companies that contemplate projects in productive and strategic sectors in the region. The president further mentioned that Bolivia expects an increase in domestic and foreign private investment and rejected the notion that the nationalization of several companies since coming into power in 2006 has prevented the arrival of new capital into the country. The president said that the policy of scaring away private investment paid off, noting that in 2005, a year before taking office, foreign investment was $221 million, while last year, it reached $7.5 billion.
As for business disputes and resolution, Mr. Morales said that with the enactment of the new law, disputes with foreign investors would be resolved in Bolivian territory and not in international courts, where “the private sector always wins.” “With this law, if there is a problem with any investor, it must be resolved in Bolivian courts and not in foreign territory. This is another way to free ourselves…” he explained.
He further explained that if a Bolivian entrepreneur were to invest in France, Holland or England, these countries could also impose their courts and subject all disputes according to their own laws and jurisdiction, not allowing them to go to other courts. “I feel that too much depends on political decisions. We might be a small country, but we also have dignity and sovereignty and our laws and courts must solve problems or disputes in our own Bolivian courts, “said Mr. Morales.
The president of the Confederation of Private Employers in Bolivia (CEPB), Daniel Sanchez, mentioned that the legislation should still work on drafting a new Conciliation and Arbitration Act. The “Arbitration Act must be fair and equitable, as well as changes in tax law, both must accompany the spirit of the Investment Law in order to give certainty to develop new ventures in the country […] In any event, the president pledged that there will be no more nationalizations of private companies, and we believe him…” said Mr. Sanchez.