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President's disease adds to gloom of Bolivian economic woes.

LA PAZ -- There was already a pervasive gloom in government circles before it was announced that President Hugo Banzer is suffering from lung and liver cancer.

Signs everywhere indicated public confidence in the government and its ability to lift the country's economy out of recession had deteriorated. Three months of street protests by small traders culminated in a siege of the banking regulator's La Paz offices on July 2 by dynamite-toting debtors before the government agreed to reopen negotiations on debt rescheduling and other measures to aid the sector.

The government called the occupation "an act of terrorism," but desperation would have been a better term. Faced with repossession and other legal measures, small-debtors have been angered by the way the government has excluded them from financial aid under its recently launched special fund for economic reactivation (FERE), a debt reprogramming initiative for large companies.

The government hopes the FERE will encourage bank lending and assist smaller banks, some of which may face intervention if the deterioration in their loan portfolios continues. The FERE will channel fresh resources via commercial banks to credit-starved industries, but with low business confidence, the program has failed to meet expectations.

Economist Napoleon Pacheco, head of the independent economic think-tank the Millenium Foundation, sums up the problem as government incompetence and a failure to recognize warning signs. "There has been a sensational lack of efficiency on the part of the government to tackle shrinking demand," Pacheco said.

The announcement that Banzer is seriously ill has only made matters worse. While there is talk Vice President Jorge Quiroga will serve out Banzer's last year, it likely will be a tumultuous period as political parties jockey for position amid a worsening economy. If Banzer decides to stay on, he will be weakened, both physically by his disease and politically because of his inability to address the country's problems.

In recent weeks, Banzer uncharacteristically backed away from several confrontations. The government withdrew a 750-strong eradication task force from coca-growing regions near La Paz following a standoff with growers and no further efforts are likely to be made under this administration.

Depressed metals prices caused the worst protests in the mining sector in more than a decade in early June. With the exception of tin, production of the country's mineral exports has fallen sharply so far in 2001. Dynamite throwing protestors brought the capital La Paz to a standstill on June 12, at which point the government offered $25 million in cash and equipment to improve cooperative output and efficiency. Radical miners' groups are still calling for a rolling back of mining privatizations.

At the same time, a return of last year's Altiplano road blockade has been gradually building momentum, cutting the main roads to Peru. Two people have died in confrontations with the army so far.

Faced with persistently sluggish economic performance and the approach of elections in 2002, the private sector, and in particular agribusiness, is calling for even more measures to ease credit. Head of the confederation of private business Carlos Calvo, has threatened "concerted industrial action" and a "refusal to pay bank loans" if more government assistance is not forthcoming.

Waning business confidence has been underlined by first quarter output figures that show negative growth in most sectors. The economy contracted by 0.16% overall through March, with the worst performing sectors being construction (-31%), trade (-10.4%), mining (-6%), and utility services (-1.9%). Labor research institute CEDLA predicts 70,000 formal sector jobs will be lost in 2001, though weak domestic demand has produced little inflation.

Pacheco believes renegotiating Bolivia's deal with the IMF is the only way forward. By restraining spending, the government met most IMF fiscal targets in 2000 at the expense of suppliers and contractors, many of whom remain unpaid. "Public spending on roads and other employment creating measures are urgently needed," said Pacheco. He also is urging the government to step up public works spending by up to $300 million. However Central Bank President Juan Antonio Morales rejects the idea. "We have no intention of [spending reserves]," he said, adding that falling reserves would undermine investor confidence and monetary stability.

Debt relief and financial assistance should bolster public spending toward the end of 2001, but delays to institutional reforms are leading multilateral lenders to suspend disbursements. Combined with the global and US downturn that is weakening demand and prices for most of Bolivia's exports, tepid consumer and business confidence and a persistent credit squeeze, GDP growth is now expected to reach no more than 2.4% in 2001. Not enough to raise consumer demand or business confidence off its existing floor.
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Title Annotation:Hugo Banzer Suarez
Publication:America's Insider
Article Type:Brief Article
Geographic Code:3BOLI
Date:Jul 12, 2001
Words:772
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