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Fitch: Bolivian Nationalization Move Factored into Ratings

May 09, 2012 | Fitch Ratings

04 May, 2012 - The May 1 announcement by Bolivian President Evo Morales that local assets of Spanish electricity firm Red Electrica will be nationalized represents the latest example of state intervention in the Bolivian economy, and highlights the challenges the country faces in attracting foreign direct investment and boosting productivity growth.

The share of the public sector in the economy has more than doubled to 34% in 2011 from 14% before Morales came to power in 2006. Since then, this administration has nationalized and seized assets, including the country's largest tin mine, the largest telecommunications company, smelting plants, cement plants, oil refineries, and all fuel wholesaling, as well as electricity generation and distribution companies.

We have factored a continuation of interventionist policies into Bolivia's 'B+' sovereign ratings, recognizing that increased state involvement in the economy and a poor business climate weigh on general investment levels. While public investment has partly compensated for weak FDI inflows, productivity and production capacity in state-owned enterprises continue to lag. As a result, Bolivia's average five-year growth, at 4.5% in 2011, remains well below the 5.9% median for the 'B' category.

Bolivia's nationalization of Red Electrica follows the recent takeover of Repsol's YPF S.A. by the Argentine government. While these actions underscore the high level of policy unpredictability characteristic of some sovereigns rated 'B', Bolivia's robust fiscal and external balances are not likely to deteriorate vis-a-vis sovereign peers due to the relatively modest size of the assets involved in the latest nationalization.

Bolivia maintains fiscal headroom with the accumulation of government deposits (16% of GDP), a strong international reserve position (now at USD12.5 billion, or 56% of GDP), and a substantial current account surplus. In addition, the country's track record of macroeconomic stability, as evidenced in low inflation rates, a stable currency regime, and a sound banking system, compares favourably with peers and even higher rated sovereigns.

Company: Bolivia

Full company nameBolivia
Country of riskBolivia

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