Bolivia Prices May Rise Less Than Bank’s Forecast, Arce Says

Bolivian inflation may quicken less than the central bank’s 2010 forecast as a surge in consumer prices last month was driven by a temporary supply shock due to extreme weather, Finance Minister Luis Arce said.

Since ending 2009 at 0.3 percent, consumer prices in the $17 billion economy quickened in the first half of 2010 before a surge in July and August accelerated the annual rate up to 2.6 percent. Last month’s 1.06 percent price rise was the biggest increase since June 2008, the government reported Sept 3.

The central bank, which forecast 4.5 percent inflation, plus or minus 1 percentage point, in its January Monetary Policy Report, in July trimmed that to 4 percent. Arce said he is confident inflation will not rise above 4 percent in 2010.

“I’m looking at 3 percent to 3.5 percent, so it will be less than the central bank’s forecast,” Arce, 46, said in an interview in his office in La Paz yesterday.

Arce said that widespread drought, subsequent wildfires and an unusually cold June and July slashed harvests and farm output in eastern parts of Bolivia. In the country’s main mining districts around Potosi, a nearly three-week-long protest last month blocked roads and crippled production, adding momentum to inflation in the region.

“We don’t see these problems repeating,” Arce said. “Last month was a peculiar month. It was an outlier.”

Bolivian monthly inflation may ease in September in comparison to August, Arce said.

Bolivia’s annual inflation was 11.85 percent in 2008.

Growth Target

While lowering his estimate for inflation this year, Arce said the government also cut its 2010 economic growth estimate to 4 percent from 4.5 percent, Arce said.

The new 4 percent figure is conservative, Arce said, adding that he is “very confident” it will be reached in 2010.

The land-locked country’s 3.3 percent GDP growth in 2009 was one of the highest among Western Hemisphere nations tracked in the International Monetary Fund’s April 2010 report.

Bolivia is now considering raising 2010 public investment to $2.1 billion from $1.8 billion to spur growth, he said.

“If we can invest in these last four months, we may be able to reach the 4.5 percent figure we projected earlier,” the minister said.

Arce, who joined the central bank in 1987, received a degree in economics from the Universidad Mayor de San Andres in Bolivia and a master’s degree in economics from the University of Warwick in England.

He became Bolivia’s finance minister in 2006 under President Evo Morales.

Bonds

Bolivia plans its first international bond sale in more than 70 years in June or July 2011, Arce said.

Arce said the Corporacion Andina de Fomento, the Andean development lender, is advising Bolivia on issuing bonds. Bolivia cannot yet disclose the size of the offering, Arce said.

“We would like to show the world that we are able to issue bonds, that we are a trustworthy country and a sustainable growth country,” Arce said.

Bolivia is planning to tap the international market as a global economic rebound increases demand for high-yielding assets. The Andean country may use the bonds to help finance a 5-year, $17 billion dollar industrialization plan, Arce said.

Standard & Poor’s raised Bolivia’s foreign-currency rating to B from B- in May and said the outlook is positive.

“The positive outlook reflects the country’s resilient economy and prudent fiscal policy,” S&P said in the statement. “The Bolivian economy depends highly on external conditions and has performed better than most of its regional peers.”

‘Reversing’ Neo-Liberalism

Bolivia’s plans to nationalize industries formerly held by the state will not affect enterprises initiated as private industries, Arce said.

“We are going to nationalize what belonged to the state,” Arce said. “But private investment from the origin will be respected under the constitution.”

In early September, Morales nationalized a 33 percent stake in a Bolivian cement producer, taking the shares away from Sociedad Boliviana de Cemento, or Soboce.

Soboce paid more than 180 million Bolivianos ($25.6 million) for a third of Fancesa’s stock when the company was privatized in 1999, according to statements from the company.

“We are reversing the neo-liberalism model,” Arce said.

In May, Morales ordered the nationalization of three generating utilities and an electric distribution company.

The three power generators were controlled until 1994 by the state-run Empresa Nacional de Electricidad.

Morales, who was first elected in 2005, has repeatedly called for increased government control over the country’s natural resources and utilities.

To contact the reporter on this story: Sara Shahriari in La Paz at sshahriari@bloomberg.net

Bloomberg - Sara Shahriari

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net