Bolivia seen likely to end IMF financing ties

Bolivia will this month likely become the latest Latin American country to end formal financing ties with the International Monetary Fund, officials and experts said on Tuesday.

The country's current three-year IMF stand-by facility, a lending plan linked to structural and economic performance criteria, expires on March 31.

IMF sources say the program will probably lapse without any new arrangement and that it will be several months at least before any decision is made on future financing of the impoverished Andean country.

"A new agreement involving financing is not necessary right now, because the international reserves are very high," said an IMF official.

"A PRGF (the IMF's "Poverty Reduction and Growth Facility" for poor countries) is a possibility, but it depends on outcome of the new government's national development program," the official said, adding such a decision was unlikely until much later this year.

Normal monitoring, including the fund's annual economic reviews, will likely continue with an IMF mission expected to visit South America's poorest country as early as next month.

Experts say, however, the government of new President Evo Morales may want to avoid funding with IMF conditions at least until his own development program is in place.

Without any major balance of payments problems at the moment and sizeable international reserves, Bolivia has no urgent need of IMF aid.

"On evaluating how much we need, we will see if we can -- via the IMF -- open any financing channels," Economy Minister Luis Alberto Arce was quoted as saying in Bolivian daily La Razon on Tuesday.

"But if the amount of financing we require is low, it will not justify an agreement with the fund. That must be evaluated," he added.

Some economists said if Bolivia allows the agreement to lapse, it will mark a further sidelining of the IMF in Latin America. Brazil and Argentina cleared debts to the fund in December, putting a further squeeze on the IMF's finances.

Unlike Brazil and Argentina, Bolivia was freed of its IMF obligations under last year's global agreement to cancel the world's 19 poorest countries' debts to the fund.

Bolivia's relative poverty would make a decision to end ties with the fund more significant, leading to questions over the IMF's role in low-income countries as well as highlighting a growing desire in the region for development independence.

RISING INDEPENDENCE

Even before Brazil and Argentina paid their debts to the IMF, middle-income countries across Asia had been building international reserves to avoid having to turn to the lender, a result of widespread regional mistrust over the fund's handling of the crises that swept over Asia in 1997-98.

Mark Weisbrot, Co-Director at the Center for Economic Policy Research in Washington, said Bolivia's long experience under IMF programs has not always been a happy one, adding that key sticking points remain with the new government.

The IMF opposes a hydrocarbons law, passed by Bolivia last year, which boosted royalty payments by foreign gas companies to the government and provided for renegotiation of some contracts and which Weisbrot said might be critical to government finances.

A longer-running issue has been the IMF-backed social security privatization in 1998, which still weighs heavily on the government's budget deficit.

"The need for new economic policies can be seen from the severe economic failure over the last quarter of a century," Weisbrot said in a report this week, adding Bolivia's per capita income is lower now than it was in 1978.

"It would not be surprising if the new government of Bolivia were to allow the current agreement with the IMF to expire at the end of March and not seek any renewal," he said.

The big question, Weisbrot said, is whether an agreement with the IMF will be a condition for other sources of funding -- especially the World Bank, Inter-American Development Bank and high-income governments.

"In the past, this would almost certainly have been true. This may not be true today," he said. "The power of the fund has declined drastically since the late 1990s."

Another senior IMF official played down the significance of any hiatus in agreements between Bolivia and the IMF.

"It's just that Bolivia does not have any kind of balance of payments problem that would require financial support and the new authorities would rather take some time to see whether they want (it)," he said.

However, he added: "If you put it into the Latin American context, certainly the fund is having a problem with keeping clients and has not been very popular in Latin America."

Credit ratings agencies seemed sanguine about the situation, but were monitoring developments. Both Fitch and Standard & Poor's rate Bolivia's at a sub-investment grade "B-minus" rating with a negative outlook.

"Right now the two key credit issues for Bolivia are the hydrocarbon sector and the policy the new government pursues in that area and also relations with the United States," said Morgan Harting, Fitch sovereign analyst in New York.

"If it gets those two policies right, the credit will improve -- that's what we're watching most," he added. "We've not identified a new IMF program as a critical credit driver."