Bolivia Set for Major Decline in Oil and Gas Revenues

Could an OPEC-like organization help stabilize oil and gas prices in Latin America? Economists are saying it could be one solution to help countries that are heavily dependent on oil and gas in their efforts to weather fluctuating global prices.

Countries like Bolivia are currently bracing for a sharp decline in revenues from hydrocarbons. Natural gas exports are the mainstay of the Bolivian economy, making up nearly 50 percent of exports.

Any movement in global prices hits the landlocked Andean country hard.

OPEC's strategy of holding output steady and forcing other countries to adjust their own production has been considered largely successful. Still, some countries, including Venezuela and Iran, want OPEC to cut production to push oil prices back up to US$70 or even US$80 per barrel.

RELATED: Indigenous Bolivians Demand a Greater Share of Oil Revenue

Other South American OPEC producers such as Ecuador have also been affected by the downturn. However, previous calls for production cuts have been rejected by the Gulf states.

Abraham Perez, an economist at Bolivia’s central bank, thinks reform is needed.

‘’At the moment there is no organization of exporting countries of gas in the region that can define prices and set contracts at the level of an organization like OPEC," Perez told teleSUR.

Perez believes an OPEC-like grouping in Latin America would make smaller states like Bolivia less vulnerable to fluctuating prices internationally.

After years of record growth in the oil and gas sector, Bolivia is getting ready for the downturn. Earlier this year the government announced that revenues from hydrocarbons, petroleum and natural gas are expected to fall 40 percent.

That means US$3 billion less in the economy than in 2014.

RELATED: Bolivian Ombuds Warns Extraction Threatens Protected Regions

Bolivia’s economy has grown at a phenomenal pace over the past decade since President Evo Morales took office in 2005 and construction is still booming in parts of the country. But fuelling most of the growth has been a dependence on hydrocarbons, natural oil and gas.

Morales has blamed the ongoing financial crisis for the loss of billions of dollars from the Bolivian economy.

‘’We don't know how long this global financial crisis will last, but it is not the responsibility of the government,” said Morales. “I regret very much that the crisis of capitalism affects the developing countries.”

The government has admitted that declines in revenue will affect budgets for next year and that some projects may have to be scaled back.

Pollsters in La Paz say this will not go down well with the public. Approval for the government’s economic policies have been steadily declining year on year.

'In October of last year we had 27 percent of the population that disapproved but in April of this year we have a 31 percent disapproval rating,’’ said Daniel Loza Lomo from the polling firm Ipsos.

The government says it will compensate for the loss in revenues by increasing domestic investment.

Though less than 2014, Bolivia still expects economic growth of 4.5 percent this year. Morales insists the economy is “strong” and able to withstand declines in revenue.

But with a referendum due next year that will decide whether Morales can run again in 2020, the Bolivian president will certainly want to stabilize the economy and continue his program of investment.

Bolivia remains one of South America’s better performing economies, but it may have to work a little harder to keep that position if oil and gas revenues continue their downward spiral.

RELATED: Bolivia Sets Date For Referendum On Evo Morales Re-election