Bolivian companies shy away from scrutiny of equities markets.

LA PAZ -- New rules on the La Paz stock market are intended to increase trading volumes, but many companies are unwilling to change their bad habits and are demanding the government help them meet their obligations rather than raising capital on local markets.

Despite the promise of accessing capital by selling equities, few companies are interested in floating shares because of the increased scrutiny this brings.

Established in 1989, the fledgling stock market (Bolsa Boliviana de Valores) only was brought under the umbrella of securities laws nine years later. The 1998 law improved investor security and gave the government regulatory authority to supervise the exchange's activities.

Despite this, just 16 companies are quoted, and trading remains dominated by the sale of public debt instruments. Bonds issued by municipal authorities, state banks and the Central Bank accounted for 98% of the $3.7 billion worth of transactions in the market during 2000.

Under government plans, the largest source of shares on the exchange was to have come from the 50% partial privatization of ten state enterprises between 1995 and 1997. The investors who bought the companies were expected to float their stock on the local exchange, a potential injection of up to $1.67 billion that never happened.

In order to avoid local manipulation of share values, these companies were required to simultaneously trade on another international market of their choice. However, most did not because they were relatively small companies, didn't need the cash and did not want the hassle of trading internationally. Another factor has been the low returns on investment that these privatized companies yielded. Analysts say trading in most cases would have produced share values below most companies' book values.

The main thrust of the new rules will be to allow non-quoted companies to sell their shares through the exchange under a public auction system. This will enable employee shareholders to sell shares and will help Bolivian private pension funds (AFP's) to diversify their investments by giving them new investment options. These funds hold the government's golden shares in the privatized companies as trustees, but want to diversify into more lucrative stocks.

The fact is that many local managers and business owners simply do not want the scrutiny that comes with public listings, says stock market general manager Armando Alvarez. Many managers are concerned that the irregular and sometimes illegal practices that are common in Bolivian business will come to light if they list on the local market.

He says company owners take loans that are never invested in their businesses. Owners also keep up to three sets of accounts to evade taxes. These accounting practices also allow companies to maintain large numbers of illegal workers and avoid paying for pensions, health insurance and unemployment insurance.

Stock market regulations require companies to come clean about their operations, but a rule introduced in 1999 to encourage companies to use the exchange backfired. The rules required all companies with more than 25 shareholders to register and present accounts to stock market authorities, even if they weren't listed. While some 50 companies registered, many more simply consolidated share ownership into fewer hands, avoiding the new rule.

Rather than change their habits and go public, many companies are clamoring for the government to bail out ailing businesses unable to meet debt payments.

The two-year recession has caused an unprecedented number of defaults. Local banks have raised provisions for bad debts to $227 million at the end of 2000, more than seven times the level of five years ago. Local entrepreneurs are demanding the government provide $380 million in aid to reschedule debts.