Bolivia Financial Sector Notes : Assessing the Sector's Potential Role in Fostering Rural Development and Growth of the Productive Sectors
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Washington, DC
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Bolivia benefited from an overall
favorable economic evolution in the last few years,
supported by sound macro-economic indicators. Yet, economic
growth was unevenly distributed between the sectors, with
particularly extractive industries, construction and
financial services showing higher real growth rates, while
agriculture and manufacturing fell behind. This is an area
of concern for the government which-as manifested in the new
constitution-aims to foster a more balanced and equitable
growth. In its reform measures, it places a particular focus
on developing the rural areas, in which a large share of the
indigenous population lives, and on the productive sector
(agriculture, forestry, manufacturing and extractive), which
provides the livelihood for a substantial number of poor
people. This paper aims to contribute to the discussion and
on-going reform efforts by providing an evaluation of the
role the financial system could play for enhancing growth in
rural areas and the productive sector without threatening
the sector's stability. It also endeavors to update the
Bank's knowledge on the financial sector, assess its
current role and recent developments, and determine possible
vulnerabilities as well as core bottlenecks for the outreach
to underserved segments of the population and economy.
However, the government needs to strike a fine balance in
its policy measures to foster outreach and credit in order
to not unduly lower the profitability in the financial
sector, jeopardize the quality of the loan portfolio and as
a result introduce vulnerability in an otherwise sound
system. In particular, the strong push towards financing of
the productive sector at comparatively low interest rates,
can lead to over-indebtedness of the clients or a
deterioration of the repayment culture, if lending
institutions expanding their loan portfolios do not maintain
(or introduce) prudent lending
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