October 17, 2012 / 7:45 AM / 8 years ago

Bolivia tests appetite for first overseas debt sale in nearly a century

TOKYO, Oct 17 (Reuters) - Bolivia will assess market appetite for its first international sovereign bond sale in 90 years this week, aiming to convince investors of the country’s strong growth potential and dispel its image of being hostile to foreign capital.

Government officials will be touring Switzerland, Los Angeles, Lima and Boston through Friday, jumpstarting a process put on pause since an initial announcement in March that Goldman Sachs and Bank of America Merrill Lynch had been enlisted to test the waters for a $500 million bond sale.

“We believe this is the best moment to put ourselves on the financial map,” said Luis Arce, the country’s finance minister, at the recent International Monetary Fund meeting in Tokyo.

“Before, no one wanted to lend to us, but things have changed. We are now solvent and we have attractive fundamentals for international investors.”

While still the poorest country in South America, Bolivia’s economy has expanded an average of 4.7 percent over the last seven years, thanks to a ramping up of its mining of lithium, gold and natural gas as raw material prices have soared.

Yet the landlocked Andean nation has been largely ignored until now by investors leery of President Evo Morales’s appetite for nationalisation, which seems to uncomfortably echo Argentina and other Latin American countries’ attempts to wrest firms from their foreign owners.

Since he came to power in 2005, Morales has put hydrocarbon, telecommunications and smelter companies under state control, and most recently took over a local subsidiary of Spanish electricity company Red Electrica in May, drawing the ire of Spain’s government.

However, Arce insists that his government only nationalises companies that were sold to private firms by previous governments, as part of a redistributive economic policy the minister says has pulled hundreds of thousands out of poverty.

Bolivia’s GDP per capita doubled between 2005 and 2011, while the number of people living on less than $1 a day dropped from over 38 percent to just above 24 percent in the same period.

Bank deposits, meanwhile, quadrupled to $12 billion, with four-fifths of accounts containing less than $500, in a sign that money is trickling down to the poorest members of society.

“We believe that better redistribution of wealth promotes accelerated growth,” Arce said. “We have never had faith in the market and we abandoned a market-based economy in 2006.”

The increased role of the state in the economy has not scared off overseas investors, however, with foreign direct investment soaring from a negative $291 million in 2005, just before Morales came to power, to $859 million in 2011.

The country’s public debt stands at 31 percent of GDP, well below Brazil’s 65 percent, while its international reserves have swelled more than seven-fold to over $13 billion in Morales’ seven-year reign to 50 percent of the country’s GDP.

Arce affirms that when or if the country issues sovereign bonds, they will be used for investment into mining and electricity, not to cover the country’s debt.

Credit agencies have sat up and taken note. Fitch Ratings and Standard and Poor’s both bumped Bolivia up to BB- this year from B- in 2004, while Moody’s upgraded the country to Ba3 from B3 in 2003.

Fitch Ratings recommended Bolivia among speculative Andean sovereigns for its maximum fiscal space due to low government indebtedness, and said its reduced external financing needs will enable it to withstand temporary drops in commodity prices.

“Progress in structural factors such as institutional strength, income levels, international trade integration, competitiveness and increasing investment are key to continuing to make progress up the rating scale,” said Erich Arispe, Director in Fitch’s Sovereign Group. (Editing by Jacqueline Wong)

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