Bolivia – Final

Charles Delehant

March 21, 2008

ECO100

Dr. Hartman

BOLIVIA

Bolivia is located in South America. Its bordering countries are Brazil on the north and east, Paraguay and Argentina on the south, and Peru and Chile on the west. Bolivia is also called the Republic of Bolivia; it was named after Simon Bolivar who helped Bolivia fight their countries independence, on August 6, 1825.

Bolivia is the poorest country in South America. Since the colonization of Bolivia it has been known for its high levels of corruption and the imperialist role of foreign powers. The country has also been called “donkey sitting on a gold-mine” for how rich it is in natural resources. In South America Bolivia is home to the second largest natural gas field, behind Venezuela. Bolivia holds seventy percent of the world’s resources in magnesium and iron. The mines that are mining all of the magnesium and iron are located in the city of El Mutun in the Santa Cruz department of Bolivia.

In 2002, the Gross Domestic Production (GDP) of Bolivia totaled to be $7.9 billion in U.S. dollars. The economic growth is an average of about 2.5 % per year, and they expect the inflation for Bolivia to be around 3% to 4% in 2002.

Bolivia’s poor economic state can be traced all the way back to three decades from various events. The first event that hit Bolivia’s economy hard was when the price of tin drastically dropped in the early 1980′s. Tin was one of Bolivia’s major sources of income. When the price for tin went down the economy was greatly felt by this, it caused people to be laid off and resulted factories to be shut down too. The second event that devastated the economy was at the end of the Cold War when the western countries withdrew their economic aid. The help the western countries were doing was to help Bolivia’s economy from falling under to a point where they wouldn’t be able to recover. The westerns countries goal before they pulled out was to keep the economy stabile by reinstating a market-liberal regime. The last event that put a blow on Bolivia’s economy was when the United States funded the abolition of the Bolivian coca-crop. When the coca-crop was at its peak it resorted to eighty percent of the world’s cocaine production. This was by far the most damaging blow that could’ve happened to the economy for them. The abolition of the coca-crop is the main reason why Bolivia is the poorest country in South America. It forced the economy to have to cut out pretty much all of its income. It made many people lose their jobs, which resulted in them becoming even poorer than they were off. The biggest effect that this had on people was the peasant class; they were the ones who harvested the coca plant, picked the crop, and the ones who produced the cocaine.

In 1985, a long term program of macroeconomic stabilization and structural reform was put into place by the Bolivian government. The government’s goal was to achieve price stability, sustained growth and scarcity. The biggest and most drastic change to the Bolivian economy was when public sector enterprises moved to capitalizations. “Capitalization in the Bolivian context is a form of privatization where investors acquire a 50% share and managing-control of public enterprise by agreeing to invest directly into the enterprise over several years rather than paying cash to the government.”  A Bolivian oil-corporation (YPFB) capitalized three units staring the construction of a gas pipeline to Brazil.  Now Bolivia has the pleasure of saying the home the second largest natural gas reserves in South America.  Government passed a hydrocarbons law in 2005 stating higher royalties and ordered foreign firms working under risk sharing contracts to give up all production to the state energy company. This law also made the companies that were privatized to be hand back over to the state energy company too.

Bolivians exports rose from $652 million in 1991 to $1.3 billion in 2002.  Their imports were $1.7 billion in 2002 also.  Bolivian trade deficit for 2002 was around $460 million.  Bolivian set their tariffs at 10%, which is usually low and 5% for their capital equipment charge.  Bolivia is able to do free trade with Columbia, Venezuela, Ecuador, and Peru because of being a member of the Andean community.  The US is Bolivia’s largest trading partner.  The United States exported around $283 million of goods to Bolivia compared to importing roughly $162 million of goods from Bolivia.  The goods that were imported from Bolivia to U.S. were things such as gold, jewelry, tin, and wood. U.S. would export cars, computers, and machinery.

Bolivia’s GDP for purchasing power parity is estimated to be around $25.682 billion, which is 101^st in the world on list of countries by GDP (PPP).  The GDP per capita is estimated to be $2817, which is 125^th on list of countries by GDP (PPP) per capita.  Also, Bolivia’s currency is in Boliviano. Agriculture accounts for roughly 15% of Bolivia’s GDP. The amount of land cultivated by modern farming-techniques is increasing rapidly in the Santa Cruz area, where weather allows for two crops a year. Soybeans are the major cash crop, sold into the Andean Community market. The extraction of minerals and hydrocarbons accounts for another 10% of GDP and manufacturing for less than 17 %.( Wikipedia “Bolivia”)

Bolivia’s economy is based mainly on agriculture, which produces soybeans, coffee, coca, cotton, corn, rice, and sugarcane. Their location in South America makes them very well off in the agricultural field because they are so rich in soil and the climate is ideal to grow crops. The work force for Bolivia is around 4.22 million but there are no numbers stating how many people work their respective fields nor were there any percentage telling you either. The economy is also based on their industries, natural resources, exports, imports, and their trading partners. Bolivian industries range from a far fetch range of things. They do mining, smelting, petroleum, food and beverages, tobacco, handicrafts, and clothing. Bolivia is considered to be one of the richest countries in natural resources. They produce tin, zinc, silver, lead, iron, gold, natural gas, petroleum, tungsten, and antiomony.

What is GDP?

GDP is a measure of goods and services produced by an economy. But any good of service that is produced also will be purchased and used by some economic agent-a consumer buying Christmas gifts of a firm investing in new machinery, for example. For many purposes, knowing not only how much is produced, but who uses it and how, is important.

Economic statisticians divide the users of the final goods and services that make up the GDP for any given year into four categories: household, firms, governments, and the foreign sector (that is, foreign purchasers of domestic products). They assume that all the final goods and services that are produced in a country in a given year will be purchased and used by members of one or more of these four groups. Furthermore, the amounts that purchasers spend on various goods and services should be equal to the market values of those goods and services. As a result, GDP can be measured with equal accuracy by either of the two methods: (1) adding up the market values of all the final goods and services that are produced domestically or (2) adding up the total amount spent by each of the four groups on final goods and services and subtracting spending on imported goods and services. The values obtained by the two methods will be the same. (Principle of macro economics)

Bibliography

1)     CIA World Factbook”. Central Intelligence Agency. March 18 2008 <https://www.cia.gov/library/publications/the-world-factbook/geos/bl.html#top>.

2)     Bolivia.” Wikipedia, the Free Encyclopedia. 17 Mar 2008, 09:46 UTC. Wikimedia Foundation, Inc. 18 Mar 2008 <http://en.wikipedia.org/w/index.php?title=Bolivia&oldid=198822974>.

3)     Bolivia: History, Geography, Culture”. Infoplease. March 18 2008 <http://www.infoplease.com/ipa/A0107345.html>.

4)     Frank, Robert H., and Bernanke Ben S. Principles of Macro Econmonics. New York, NY: McGraw-Hill Irwin, 2007.