This paper seeks to establish the factors related to the Human Development Index, incorporating the spatial dimension in the analysis of its determinants. The variables were classified into four groups: geographic, socio-economic, demographic and infrastructure and services. The results show that the geographic and demographic variables are important in the socio-economic development of municipalities. In relation to economic variables, only the variable rural economic organizations is significant, showing the importance of these institutions. Furthermore, contrary to expectations, the variable municipal social spending per capita is not significant, suggesting that central government spending is more important in achieving better health and education indicators, and finally, the process of decentralization has not been able to reach these levels. On the other hand, the spatial dimension is relevant in human development at the municipal level, showing that there is a process in which events in one location are more likely to predict similar events in neighboring geographical units. In this regard, plans or projects of the municipalities should be made jointly and not individually.
The global financial crisis (GFC) has had a negative effect on the Bolivian economy. The outbreak of the GFC has caused a drop in export commodity prices such as mining and hydrocarbons, and a reduction in remittances. Bolivia however, was in a relatively good position to deal with the negative effects of the GFC. The country has experienced in recent years an important commodity price boom, which significantly increased external revenues, public and private incomes and consumption levels. Although the GFC has had a mild effect on the Bolivian economy so far, there are important structural factors that could put at risk the long term sustainability of policies and of the macroeconomic equilibriums. Among these factors are: i) a low investment rates, which could risk growth prospects and employment creation; ii) a large dependency of Bolivia fiscal sector on the hydrocarbon rent, which makes the long term sustainability of macroeconomic policies and of the current economic situation questionable; iii) the lack of a favourable investment climate required to increase growth and employment, which depends among other factors of the rule of law, property rights, judicial security, clearer and more stable rules of the game, macroeconomic stability, etc. iv) lack of a clearer strategy in relation to the country external insertion is also necessary. Access to larger markets, with higher incomes and purchasing power, is necessary to promote sustainable growth and employment creation, and to reduce the vulnerability of the Bolivian economy to shocks. Trade agreements with the USA, European Union and other regions of the world are necessary to promote investment, growth and employment creation.
This paper discusses the implementation of the Heavily Indebted Poor Country (HIPC) initiative in Bolivia. It has been agreed in principle that the debt relief funds should be channeled to municipal governments in order to strengthen the ongoing decentralization process and to secure maximum poverty reduction effect. If everything goes according to plan, the HIPC initiative could have a substantial effect on poverty in Bolivia. However, the entire project builds on some very optimistic assumptions regarding the performance of the Bolivian economy during the next 18 years. If these optimistic assumptions do not hold Bolvivia will not reach the target debt/export ratio of 150. Even worse, if economic perfomance does not live up to expectations, there may be half-finished investment projects (roads, schools, hospitals, etc.), which cannot be completed and maintained, because the central government won't be able to deliver the funds that the donors have committed them to deliver to the municipalities.
The global financial crisis is expected to have a negative impact on the Bolivian economy. Effects will transmit into the economy through lower export prices and quantities, reduced amount of remittances and depressed foreign direct investment (FDI) flows. These shocks will bring about deficits in the current account and fiscal balances, foreign exchange reserves losses, sluggish economic growth and higher unemployment rates. The latest data available show that the economy is already experiencing the effects of the economic downturn, in the form of decreased exports revenues, sharp reductions in the rates of growth of foreign of exchange reserves and bank lending and a tendency towards a re-dollarisation of financial assets and liabilities. The Bolivian economy, however, is better prepared, at least in the short run, to cope with the negative effects of the crisis. The commodity export boom experienced between 2005 and 2008 has permitted the country to run sizable external and fiscal surpluses and accumulate foreign exchange reserves. The financial system has exhibited more prudent behaviour in recent years, by not expanding credit too much and increasing investments in highly liquid public bonds. Therefore, although banks are expected to be affected by the global financial crisis, they have high liquidity ratios and are not extremely exposed to risk. The capacity of the Bolivian economy to offset the negative effects of the global crisis will depend on several factors, such as the severity and duration of the crisis and, above all, the quality of the policies that policymakers will implement to cope with the crisis. The government faces several trade-offs in implementing policies in order to cope with the effects of the crisis. The central bank, for instance, is committed to maintaining a fixed exchange rate, in order to reduce inflationary pressures and to avoid a re-dollarisation of the financial system. However, a fixed exchange rate policy has already brought about an exchange rate appreciation, which is hurting competitiveness of tradable activities. Furthermore, the government has room to implement countercyclical fiscal policies, by resorting to the deposits accumulated in the central bank during the export boom years. During 2009, the government is planning to expand public investment and to increase direct transfers to the population. However, these policies are not likely to offset the negative effects that the crisis will have on growth and employment. More efforts should be made to improve the quality of public spending, in order to maximise its impact on economic growth, employment creation and poverty reduction.
