Bolivia: Bond Issuance Imminent?

Investors will be interested in purchasing Bolivian government bonds when they are issued, if for nothing more than diversification purposes.  The planet is awash in liquidity.  Furthermore, developed market fiscal crises (read: in Europe and the U.S.), coupled with high commodity prices and huge concentrations in bellwether emerging markets such as Brazil and Mexico, are pushing investors into frontier markets.  Bolivia is one of them.  The story has its high points — huge external liquidity (fx reserves), macro policies better than Argentina’s and Venezuela’s, and a captive market for natural gas in energy-famished Brazil.  Nevertheless, Bolivia has sizable risks, with bond ratings of B+ at Fitch and S&P and B1 (which is the same as B+) at Moody’s, though the latter has a Positive Outlook on its rating, suggesting that Bolivia could enter the much-vaunted BB range within two years (with the likes of Angola and Montenegro as peers).

The government not long ago nationalized mining and energy assets, taking on Brazil’s energy behemoth Petrobras.  The state’s role in the economy has doubled.  The government has authorized the use of the central bank’s ample fx reserves to invest in state-owned enterprises and fund social programs.  Political institutions need to strengthen and social conflicts persist, in spite of some success by the Morales government in reducing inequality through its conditional cash transfer program.  Finally, due to state involvement in the economy, investment levels remain low (at around 17% of GDP) and as a result, GDP growth remains unimpressive.