Fiscal

By Edvin Arnby Machata

The international development community has for almost two decades focused on improving governance as a strategic priority for aiding economic growth. This article points to the historical record and argues that 1) growth does not require good governance, 2) good governance and representative institutions are products of economic development – not the other way around, and that 3) the configuration of national institutions determine whether a political order will produce developmental outcomes or not.

‘Good governance’ has been a mainstay component in most donor-funded development programmes during the last two decades. What exactly constitutes good governance is empirically problematic, but while implementations vary, demands for good governance generally include provisions to minimize graft and increase respect for human rights.

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“What’s the difference between a recession and a depression,” asks a member of the public. “A recession is when you lose your job; a depression is when I lose mine,” replies an economist.

This is just one of numerous little jokettes that colour the pages of The Cartoon Introduction to Economics—a brilliant must-have for any student or teacher of economics or, indeed, anyone else interested in getting to know or simply recapping on the basics of a field that is currently positioned at the center of local, national and global decision-making. Read More »

By Anuradha Seth

The frequency of global financial and economic crises has increased over the past decade and a half, and they appear to have become a systemic feature of the international economy. The risk of economic growth and human development achievements being undermined by such volatile international developments is fostering an overall re-think about the inner nature of crises, the growing vulnerability of developing countries and their capacity to be resilient in the face of these shocks. Read More »

During the last few years a new economic setting has emerged in the Bolivian economy lead by the fiscal sector that can be summarized by three facts: i) For the first time in history the Bolivian economy has recorded fiscal surpluses several years in a row; ii) there is a social policy to attack poverty based on transfers from the government to the households (conditional transfers like the Bono Juancito Pinto, Renta Dignidad and Bono Juana Azurduy); and iii) the aim of the government is to use fiscal policy and in particular public investment as the foremost instrument to promote growth and welfare.

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“Thinking to get at once all the gold the goose could give, he killed it and opened it only to find – nothing” By Aesop, The Goose with the Golden Eggs

During the last 5 years we have experienced a spectacular oil-price boom (see Figure 1), which has been thoroughly exploited by the Bolivian government to increase public revenues. Between 2002 and 2007, government revenues from the upstream hydrocarbon sector increased by a factor of 7, lately accounting for more than a third of all government revenues (www.upf.gob.bo ).

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“A pessimist sees the difficulty in every opportunity;
an optimist sees the opportunity in every difficulty.“
Winston Churchill

Last week, Fundación Milenio (FM) presented its Economic Report for the first semester of 2008. The numbers look great, with high economic growth (6.1% for the first trimester), booming exports (58.3% more than same period last year), a rapidly growing trade surplus (117.4% more than same period last year), increasing tax revenues (26.5% higher than last year), falling external debt (31.1% lower than 12 months ago), increasing foreign reserves (55.5% higher than 12 months ago), and an enviable public sector surplus (2.5% of GDP).

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La Paz is one of the slowest growing cities in Bolivia, in terms of population. Every year, twice as many people move away from the city than move into it from other regions (1). Between 1992 and 2001, the city’s population grew a modest 11%, compared to the 60% growth of El Alto and Santa Cruz de la Sierra, and the 40% growth of the total urban population (see Table 1).

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“Putting off an easy thing makes it hard.
Putting off a hard thing makes it impossible.”
George Claude Lorimer

If I were the mayor of almost any growing town or city in Bolivia, I would engage in land speculation with the municipality’s resources. I would buy up cheap land in strategic places and build streets, install water, sewage, electricity, and in general prepare for ordered urbanization. Then I would sell the plots for about 10-20 times what it cost me to prepare them.

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Recently, the Bolivian government has made a generous change to the universal pension payment scheme (formerly BONOSOL, now Renta Dignidad) lowering the pension reception age from 65 to 60 years, and increasing the annual payment from Bs. 1.800 to Bs. 2.400. This means an immediate doubling of universal pension payments. However, due to the rapidly increasing population aged 60+, already by 2025 this implies a pledge of 3.5 times the current universal pension payments.

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It is not quite clear which is the best way to use exceptional oil and gas revenues (1), but the worst way is probably for the government to use expected future revenues as collateral to borrow money. This would not only increase inequality and poverty during the boom (see How can $700 million in hydrocarbon revenues be bad for the poor?), but also burden future generations with excessive debt, which become difficult to service after the boom has ended.

Ecuador is a scary example of that (2). After discovering oil in the rain forest in 1967, Ecuador quickly became the second biggest oil exporter in South America. By 1974, oil accounted for half of all export earnings (like Bolivia’s gas now) and approximately half of the government budget.

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